The result of Boxer Retail’s initial public offering (IPO) confirmed Pick n Pay’s belief that the listing of the discount retailer would be well received. Boxer’s IPO represents the second and final step of the two-step recapitalisation plan by Pick n Pay. The issue of 157,407,408 offer shares (34.4% of the company’s issued capital), at a subscription price of R54.00 per offer share – at the top end of the pricing range – raised R8,5 billion. A total of 457,407,408 shares were listed on 28 November closing the day at R63.51 per share, close to an 18% increase on the IPO price giving Boxer a market capitalisation of R29,05 billion, larger than that of Pick n Pay and TheSPAR. Pick n Pay will hold 300,000,000 shares or 65.6% of Boxer which it may not reduce for 180 days due to agreed-upon lock-up arrangements, nor will it be entitled to issue Boxer shares for 365 days.
In a move integral to its objective of demerging its initial 78.56% stake in Anglo American Platinum (Amplats), Anglo American, via its subsidiary Anglo American South Africa, has successfully completed an on-market offering of 17,5 million Amplats shares at R548.00 per share. The shares which represent a 6.56% shareholding will reduce Anglo’s stake to 66.7%. Anglo’s remaining shares are subject to a lock-up of 90 days. The R9,59 billion proceeds from the placing will be used to reduce Anglo’s net debt as the group focuses on copper, premium iron ore and crop nutrients in a drive to achieve sustainable attractive returns.
Shareholder of Life Healthcare are to receive a second special dividend this year with the group announcing it will pay 70 cents on top of the final dividend for the year of 31 cents. This takes the total payout to shareholders for the year to end-September to R10,6 billion.
OUTsurance has issued 5,552,510 shares to minority shareholders of OUTsurance Holding (OHL) in exchange for 12,720,025 OHL shares. As a result of the transaction, OUTsurance has increase its interest in OHL to 92.53%.
Shareholders have approved the name change of EOH to iOCO Limited. The change of name will now be lodged with the Companies and Intellectual Property Commission. Salient dates will be published once CIPC registers the resolution.
The JSE has approved the transfer of the listing of Sable Exploration and Mining to the General Segment of Main Board with effect from commencement of trade on 28 November 2024. The listing requirements in this segment are less onerous for the smaller cap firms.
Murray & Roberts applied to the JSE for the voluntary, temporary suspension of trading of its shares. This follows the placing in business rescue of M&R Limited and its trading division OptiPower.
This week the following companies repurchased shares:
Datatec has commenced with a repurchase programme which will be funded using existing cash resources. The repurchases shares will be cancelled in due course, reverting to an authorised but unissued share capital status.
Sabvest Capital has repurchased 850,000 shares for a total consideration of R82 million. The shares will be cancelled and delisted on 6 December 2024.
In October, 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 18 – 22, November 2024, the group repurchased 717,573 shares for €37,83 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 885,497 shares at an average price per share of 286 pence.
South32 announced in its annual financial statements released in August that it would increase its capital management programme by US$200 million, to be returned via an on-market share buy-back. This week 800,686 shares were repurchased at an aggregate cost of A$3,02 million.
In line with its share buyback programme announced in March, British American Tobacco this week repurchased a further 305,545 shares at an average price of £29.79 per share for an aggregate £9,1 million.
Prosus and Naspers continued with their open-ended share repurchase programmes. During the period 18 – 22, November 2024, a further 3,143,167 Prosus shares were repurchased for an aggregate €119,34 million and a further 320,132 Naspers shares for a total consideration of R1,32 billion.
Six companies issued profit warnings this week: Visual International, Hosken Consolidated Investments, Copper 360, Brikor, Transaction Capital and Ayo Technology Solutions.
During the week, two companies issued cautionary notices: Accelerate Property Fund and MAS plc.
The International Finance Corporation (IFC) has announced US$605 million in commitments to three projects in Egypt to support economic development across key sectors such as climate finance, sustainable tourism and access to finance for micro, small and medium-sized enterprises.
IFC, the European Bank for Reconstruction and Development (EBRD) and British International investment will each invest $100 million in a bond from Arab African International Bank. This is Egypt’s first sustainability bond and the largest issued by a private bank.
IFC will provide a $155 million loan to Orascom Development (Egypt) to boost green tourism by improving water and energy efficiency at several hotels in El Gouna, along the Red Sea.
The third project is a $150 million loan to Commercial International Bank to support micro, small and medium-sized enterprises in Egypt.
Paratus Group, the pan-African telecommunications and network services provider, has entered the Kenyan market through a joint venture with Nairobi- based IT and ISP company, MoveOn Telecoms. The JV, launched as Paratus Kenya was created to provide and install Starlink services.
Proparco has partnered with Admaius Capital Partners to support medical education in Senegal through an investment in St. Christopher Iba Mar Diop Medical School, one of the largest private medical training institutions in Francophone Africa.
Kenyan Internet Service Provider (ISP), Mawingu, has raised US$15 million in debt and equity funding to expand its network across East Africa through the acquisition of Tanzanian ISP, Habari. InfraCo Africa and FMO, both existing investors in Mawingu, invested an additional $4 million which enabled the ISP to secure $11 million in long-term senior debt Cygnum Capital’s Africa Go Green Fund.
FMO, the Dutch Entrepreneurial Development Bank, and ElectriFI, an EU impact investment facility managed by EDFI Management Company, have provided US$9 million in debt funding to Hydrobox, to support eight small hydro projects across four mini-grids in Kenya.
EFG Corp-Solutions, Bank NXT, EG Bank and other lenders are providing Sylndr, an online used car marketplace, with a EGP370 million asset-backed working capital facility. The financing will be used to support its growth strategy and operational efficiency.
Kenya’s STIMA has received an undisclosed investment from early-stage investment firm, Renew Capital. The STIMA all-in-one platform assists e-mobility companies with managing their battery fleets. The software is used by companies in Kenya, Nigeria and Benin.
Tanzania’s largest bank, CRDB Bank has refinanced its syndicated term loan facility, first launched in 2022, for the third time. The facility was established to unlock working capital and support the bank’s lending portfolio for the SME sector in Tanzania and Burundi. This third raise, initially targeted US$100 million but was oversubscribed with total commitments of $247 million. The new $150 million term loan facility is split between a $45 million two-year tranche and a $105 million one-year tranche facilitated by 17 lenders across Africa, the Middle East, Europe and the UK.
BluePeak Private Capital has announced a US$15 million sustainability-linked investment in Tunisia’s Sancella, one of the largest manufacturers and distributors of disposable hygiene products in the Maghreb region and Francophone West Africa.
FMO (acting as lead arranger), British International Investment, Proparco, and ILX, announced a working capital facility of up to US$90 million for Robust International, a leading agri-commodity trader headquartered in Singapore. The funds will enable Robust to buy sesame and cashew nuts directly from cooperatives, aggregators and local farmers to support operations at its new processing facilities in Burkina Faso, Ivory Coast, and Mozambique which are expected to create over 1,100 direct jobs at the plants which will support up to 600,000 smallholder farmers.
BCME Capital Investments’ Capital Venture Fund is investing 5 million dirhams in Morocco’s PTS (Premium Technology & Service) to accelerate the starup’s development and growth in the digital payments sector.
Kwararafa Africa, along with TY Holdings and Notore Chemical Industries (Mauritius), the core shareholders of NGX-listed Notore Chemical Industries Plc, have offered to buy out the minority shareholders through a scheme of arrangement. Financial terms of the offer are yet to be disclosed.
There are several pricing mechanisms which can be applied when purchasing or disposing of the shares of a company or a business (Target). In this article, we discuss some of the common pricing mechanisms and key considerations for buy-side and sell-side transactions.
Locked Box
The purchase price in a locked box mechanism is based on financial information derived from the financial statements or management accounts at a point in time. These sources of information, along with other financial information such as forecasts, are used to calculate both enterprise value and equity value. The date of the financial information constitutes the agreed date of the “locked box” (Locked Box Date), which is usually the end of a most recent financial year. Financial statements would typically be audited, thus giving credence and credibility to the information. The purchase price will be agreed and fixed when the parties sign the transaction agreement (Signature Date), and will reference a locked box balance sheet at the Locked Box Date.
From the Locked Box Date (or even Signature Date), the seller or Target is prohibited from making certain payments which will extract value from the Target. Such prohibited payments may include dividends, management fees, and non-operational payments known as “leakage”, while payments in the ordinary course of business will be permissible and are regarded as “permitted leakage”. In spite of payment only being made by the buyer at a later date, risk and benefit in relation to the Target passes to the buyer on the Locked Box Date.
The purchase price is often payable on the closing date, when ownership of the Target transfers from the seller to the buyer in terms of the transaction agreement (Completion Date). As the purchase price is fixed as at the Locked Box Date, the period between then and the Completion Date may be an extended period of time (Locked Box Period). Therefore, where profits increase in the Target during the Locked Box Period, such profits will be locked in the “locked box” and lost by the seller. The converse also holds true, making it even more important that a robust valuation is conducted for both parties to assess, in their view, the value of the Target.
Although not common, the sell-side may negotiate value accrual based on (i) additional cash flow generated by the Target and/or (ii) interest on the purchase price during the Locked Box Period. The buyer may protect itself by crafting walk-away rights in the transaction agreement, such as the occurrence of a material adverse change in the Target.
Completion / Closing Accounts
When utilising the completion accounts as a pricing mechanism, the seller will prepare a preliminary closing balance sheet to indicate pertinent balances, such as net debt and working capital, et cetera, before the Signature Date. The estimated purchase price will be paid in full or partially on the Closing Date and on the Completion Date, and risk and ownership in relation to the Target will pass at this point or when the balance is paid in full, depending on the provisions of the transaction agreement.
The transaction agreement will detail a timeline within which the estimated purchase price will be finalised, based on final completion accounts to be provided by the seller to the buyer post the Completion Date. The buyer is provided an opportunity to accept or dispute such final completion accounts. Taking account of the pertinent balance sheet items, any difference between the estimated purchase price and the final purchase price is either paid by the buyer or reimbursed by the seller to adjust the purchase price.
Unlike with the locked box mechanism, the equity value is not fixed. It is finalised post the Completion Date, to adjust the purchase price based on the completion accounts.
Earnout
An earnout, as a pricing mechanism, allows the seller of the Target to receive additional compensation if the business of the Target meets specified financial metrics during a defined period. This is known as the “earnout period”, which is usually between one to three years. These financial targets are typically based on metrics such as earnings before interest, taxes, depreciation, and amortisation (EBITDA) or net profits (Financial Targets). The transaction agreement will define the metrics for calculating the earnout, with the final determination of whether the financial metrics are achieved being based on the results reflected in the Target’s annual financial statements.
The earnout mechanism eliminates uncertainty for the buyer as they only pay a portion of the purchase price upfront, with the balance based on future financial performance of the Target, usually at the end of each financial year during the earnout period. This holds the seller accountable for financial forecasts that it may have provided to the buyer which were used in determining the valuation and purchase price. The earnouts are usually paid in cash, but shares are not uncommon. Unlike a locked box mechanism (subject to negotiating value accrual), the seller benefits from future growth during the earnout period, depending on how the earnout is structured.
The method for calculating Financial Targets must be specified clearly in the transaction agreement to prevent disputes, as earnouts often lead to post-closing disputes that can escalate to litigation or arbitration, similar to the completion accounts mechanism.
The earnout calculation, period, and the management team post-acquisition must be carefully negotiated and detailed in the transaction agreement, as these factors will contribute to the Target’s ability to meet its Financial Targets. The transaction agreement should also cater for any potential anomalies, accounting complexities and recognition criteria (if applicable), ensuring that all parties are aligned as to how the Financial Targets will be measured.
Concluding which mechanism is appropriate for a particular transaction requires consideration of the business / industry of the Target, complexity, timing and cost, amongst other factors. The locked box may be preferred for transaction simplicity in respect of time and cost, whereas completion accounts and earnouts as mechanisms may be preferred because the purchase price paid aligns with the actual company / business value based on adjustments after the Completion Date.
Transaction advisors can assist parties to navigate each of the mechanisms and decide which one is appropriate for a specific party, and the Target being acquired or disposed of in a transaction.
Thandiwe Nhlapho and James Moody are Corporate Financiers | PSG Capital
This article first appeared in DealMakers, SA’s quarterly M&A publication.
South Africa’s private equity (PE) sector is looking to realise a notable influx of deal activity and increased investment opportunities over the next year, prompted by a resurgence in interest from both local and international investors across various sectors.
In South Africa, it is hoped that the recently formed Government of National Unity will lead to greater market stability and an improved economic climate. A move towards lower interest rates in developed markets will also increase risk appetite for investments into emerging markets.
In our view, the following sectors present investment and growth opportunities in South Africa:
ESG and impact investing
Like most commercial sectors, the rise of environmental, social and governance (ESG) considerations has similarly permeated Africa’s PE environment. Investors in PE funds are increasingly imposing sustainability and social development requirements on PE firms, and require that they take these factors into account as part of their investment objectives and throughout the life cycle of their investments. This is especially pertinent for PE firms with commitments from development finance institutions.
Impact investing is particularly relevant in South Africa, where complex social issues such as poverty, inequality and unemployment, remain rife. Investments into sectors such as affordable housing, education, food and healthcare have the potential to create long-term value for both investors and society, making South Africa attractive to PE firms with an impact/ESG mandate.
Information and communications technology (ICT)
South Africa has one of the largest ICT sectors on the continent, so it is unsurprising that PE opportunities in the sector are on the rise.
In recent years, South African subsidiaries of foreign companies and South African-based companies have supplied most of the new fixed and wireless telecom networks established across the African continent.
Additionally, there are increasing opportunities within South African organisations looking to utilise cloud computing’s cost-effective and efficient networks, such as Software-as-a-Service and Infrastructure-as-a-Service. These recent technological advancements and rising demand within South Africa and the rest of the African continent have created a fruitful PE investment environment in the ICT sector.
In this space, Bowmans recently acted for Convergence Partners Digital Infrastructure Fund in its acquisition of 100% of the issued shares in Datacentrix Holdings Proprietary Limited alongside the Datacentrix management team. Datacentrix provides ICT integration services and solutions to the public sector and blue-chip corporates in South Africa, ensuring their success and sustainability into the digital age.
The team also advised a consortium of buyers comprising the IDEAS Infrastructure II Partnership, STOA Infra & Energy and Thebe Investment Corporation Proprietary Limited in relation to the acquisition of the shares held by Actis LLP in Octotel Proprietary Limited and RSAWeb Proprietary Limited. Octotel is a network infrastructure provider focused on the delivery of world-class fibre infrastructure.
Fintech
South Africa has become a leader in African financial innovation, and the fintech market in South Africa presents promising investment opportunities. Payment solutions have continued to dominate financial technology innovation in the country, attracting substantial investments from PE firms. This is amplified by South Africa’s relatively low costs and large market offering in the tech space.
Bowmans recently advised Swissquote Group Holding on its acquisition of 100% of the shares in Optimatrade Investment Partners. Swissquote provides a range of online financial and trading services, and Optimatrade is a South African regulated Financial Services company that focuses on making offshore investing easier and more accessible for South African investors and traders by partnering with global online financial and trade services providers.
Renewable energy
PE funds are increasing investments into renewable energy, green hydrogen, battery storage and smart power technology projects across the continent. Green energy solutions are essential to increase access to a decarbonised, decentralised energy supply.
This has become crucial in light of South Africa’s electricity crisis and the detrimental economic effect that prolonged load-shedding had on the economy.
PE firms have been successfully investing in independent power producers (IPPs) that generate renewable energy that is then sold to Eskom. The lifting of licensing requirements for large-scale generation projects and these efforts to address the electricity crisis have stimulated significant growth in South Africa’s renewable energy market. As a result, renewable energy capacity has expanded rapidly, resulting in numerous opportunities for investment within the sector.
Bowmans recently advised the Evolution III Fund – an Africa-focused climate impact investment fund managed by Inspired Evolution – in relation to its investment in Equator Energy Ltd (a commercial and industrial solar provider in East Africa) via the acquisition of 33.3% of the issued shares in Energy Pulse Ltd, the majority shareholder of Equator Energy.
Inspired Evolution specialises in clean energy infrastructure, energy access, and resource efficiency investments.
Bowmans also recently acted for Adenia Partners in relation to (i) its acquisition of a majority stake in the Herholdts Group, a leading distributor of electrical and solar equipment in South Africa, and (ii) its indirect acquisition of Enfin AM and Enfin Developers, a South African-based solar financing solutions provider.
Agribusiness
Agribusiness has come to the fore as a profitable investment sector in South Africa. For context, the sector’s overall contribution, including the value chain, was around 10.3% of South Africa’s gross domestic product at the end of 2023.
The value of these investments is compounded by the positive impact of technology and big data. Considering climate change and water shortages, the agricultural sector is at an advantage by implementing new technology that efficiently manages and ensures an optimum environment for agricultural growth, ultimately yielding a valuable investment return.
As a result, these resources continue to contribute to South Africa’s economic resilience and attractiveness as a PE investment hub, promising long-term opportunities for growth and development in a resource-rich environment.
Bowmans recently advised US private-equity firm Paine Schwartz Partners’ portfolio company, AgroFresh Inc. – a US-based company and global leader in the post-harvest agricultural space – on its acquisition of South Africa-registered Tessara (Pty) Ltd from private equity firm Carlyle Group Inc. This transaction was recently awarded ‘Private Equity Deal of the Year’ at the South African DealMakers Awards.
Bowmans also acted for Phatisa in relation to its investment in the Lona Food Group, a South African-based citrus grower and exporter.
Supply chain logistics
According to Mordor Intelligence1, the size of the freight and logistics markets in South Africa was US$13,79bn in 2024, and is expected to reach $19,9bn by 2030, growing at a compound annual growth rate of 6.29% during the forecast period.
The increasing demand for supply chain and logistics services is partly due to the predicted boost in intra-African trade, which is slowly starting to take off after the implementation of the African Continental Free Trade Area (AfCFTA) in 2021.
Further, global trade is recovering as interest rates begin to decrease and economies improve. The development of digital logistics solutions and telematics systems has also increased efficiency in supply chain logistics, boosting interest in the sector and providing good opportunities for PE funds to exit their investments.
Bowmans recently advised on the disposal of a minority shareholding in a significant warehousing, distribution management, and logistics company.
Consumer goods and retail
While high inflation, interest rates and unemployment have put pressure on consumer spending in the last few years, interest rates are now decreasing and consumer spending is on the rise. Further, with AfCFTA now operational, free trade across the continent is expected to increase in the next few years. All of this has boosted PE investment in the consumer goods and retail sector, with investors looking for opportunities to acquire companies on a growth trajectory.
Bowmans recently advised Capitalworks on its acquisition of 100% of the shares in The Building Company (Pty) Ltd, a South African company offering building materials, hardware and related products to retail customers.
Healthcare
PE investors in the healthcare sector have been capitalising on the growing demand for quality healthcare services and the need to address the healthcare infrastructure gap in South Africa.
Investments are being directed towards the building of hospitals and clinics, healthcare insurance services, and related industries, such as medical equipment and pharmaceutical manufacturing. The demand for digital healthcare is also booming, with the sector having a considerable impact on providing continuous access to healthcare for South Africans in rural areas.
Bowmans recently advised Next176 (Pty) Ltd on its agreement for future equity with Kena Health (Pty) Ltd. Next 176 is a venture-building strategic investment company that focuses on sustainable investments that impact lives. Kena Health offers a technology-driven healthcare platform in South Africa.
The PE landscape in South Africa continues to evolve rapidly, driven by changing global and local market dynamics, technological advancements, and shifting investor preferences. Investors in South Africa still have challenges to overcome, but optimism surrounding the country’s new government and renewed political landscape, its diverse high-growth sectors, ambitious workforce and rich natural resources are just some of the key areas of opportunity for PE investments in South Africa.
Zimbabwe’s mergers and acquisitions (M&A) landscape continues to grow, driven mainly by its abundant mineral resources — particularly lithium and gold — the capital needs of local businesses, and government efforts to attract foreign direct investment (FDI). Sectors such as mining, energy, agriculture and manufacturing continue to attract the most M&A deal flow, as investors aim to capitalise on Zimbabwe’s untapped natural resources and its strategic location within Southern Africa.
M&A transactions are vital for businesses looking to expand, diversify or enter new markets in Zimbabwe. However, navigating the country’s regulatory landscape can be complex and requires thorough due diligence.
This article, the first in a three-part series, outlines the key regulatory bodies governing Zimbabwe’s M&A environment, providing essential considerations for businesses and foreign investors.
KEY REGULATORY BODIES IN ZIMBABWE’S M&A LANDSCAPE
Several regulatory authorities are crucial for ensuring compliance in Zimbabwean M&A transactions. The most significant of these include:
Registrar of Companies and Other Business Entities
Role and key functions: The Registrar of Companies and Other Business Entities, established under Section 6 of the Companies and Other Business Entities Act [Chapter 24:31], oversees the registration and deregistration of companies, as well as various administrative tasks, such as company name changes, updates to directors, and changes in share capital and physical addresses. Due diligence on local entities must go through the Registrar’s office, and anyone seeking to verify a company’s existence must consult the Companies Registry.
The Reserve Bank of Zimbabwe (RBZ)
Role and key functions: The RBZ plays a crucial role, particularly in cross-border M&A transactions involving foreign investors and/or financial obligations. Established under the Reserve Bank of Zimbabwe Act [Chapter 22:15] and exercising authority under the Exchange Control Act [Chapter 22:05], the RBZ must approve any acquisition of shares by foreign residents. The RBZ also oversees adjacent processes, such as the repatriation of profits, divestments, and the contracting of foreign financial obligations, which is essential to maintain Zimbabwe’s economic stability by managing foreign currency reserves.
Competition and Tariff Commission (CTC)
Role and key functions: The Competition and Tariff Commission or CTC was established in terms of the Competition Act (Chapter 14:28), and oversees the prevention and control of restrictive practices, the regulation of mergers, the prevention and control of monopoly situations, and the prohibition of unfair trade practices.
M&A transactions involving parties whose combined annual turnover or assets exceed US$1,2 million must be reported to the CTC within 30 days of the merger agreement. This regulatory step ensures market competition is preserved, and that mergers do not result in unfair market dominance. Failure to notify the CTC may lead to steep penalties, including (but not limited to) the complete reversal of the transaction in question. This makes the reporting essential for timely and conclusive transaction closure.
An interpretation of Zimbabwe’s laws generally provides that all mergers that involve the acquisition of a controlling interest in a competitor, supplier or customer, and which breach the above financial threshold, must be notified.
Ministry of Industry and Commerce
Role and key functions: The Ministry of Industry and Commerce, working in conjunction with the Indigenisation and Economic Empowerment Unit, is a critical office to consider when seized with a transaction involving an economic sector reserved for indigenous Zimbabweans.
In terms of the Indigenisation and Economic Empowerment Act (Chapter 14:33), foreign investors are precluded from conducting business in certain economic sectors without an exemption from the aforesaid Ministry and Unit. The reserved sectors include retail and wholesale; transportation: passenger buses, taxis and car-hire services; barber shops; employment agencies; estate agencies; and tobacco processing, grading and packaging, to mention a few.
Zimbabwe Investment and Development Agency (ZIDA)
Role and key functions: Established under the Zimbabwe Investment and Development Agency Act (Chapter 14:37), ZIDA serves as the primary body for the promotion and facilitation of foreign investment in Zimbabwe.
The agency grants investment licenses which provide legal protections, such as the right to repatriate funds; protection from expropriation; and safeguards against discriminatory practices. Additionally, ZIDA is responsible for establishing and regulating special economic zones and appraising, as well as recommending the approval of Public Private Partnerships with the Government of Zimbabwe to the Cabinet.
For M&A professionals and dealmakers alike, ZIDA’s One-Stop Investment Services Centre simplifies the regulatory process by providing a centralised point for approvals, thereby streamlining the transaction process. The One Stop Investment Services Centre is akin to the One Stop Centre of the Rwanda Development Board or, in the case of the Tanzanian Investment Centre, the One Stop Facilitation Centre. This setup significantly enhances the ease of doing business in Zimbabwe, making it more attractive to foreign investors seeking entry through M&A.
Zimbabwe Revenue Authority (ZIMRA)
Role and key functions: The Zimbabwe Revenue Authority is the tax man. In the context of M&A, ZIMRA plays an essential role by ensuring tax compliance, particularly under the Capital Gains Tax Act (Chapter 23:01). Under Zimbabwean law, no transfer of shares shall be valid without a duly issued capital gains clearance certificate; thus, it is essential to apply for same before consummating an M&A transaction.
Once regulatory approvals are secured, M&A transactions can proceed to completion. However, it should be noted that different regulatory bodies may be involved, depending on the exact nature of a transaction. For instance, acquiring a controlling interest in a telecommunications company requires approval from the Postal and Telecommunications Regulatory Authority, while buying a substantial stake (at least 5%) in a financial institution requires approval from the Registrar of Banks.
In conclusion, although navigating the regulatory frameworks of M&A is a complex and often time-consuming endeavour, with proper preparation and an understanding of the regulatory landscape, businesses can successfully execute M&A transactions in Zimbabwe.
Tapiwa John Chivanga is a Partner | Scanlen & Holderness
This article first appeared in DealMakers AFRICA, the Continent’s quarterly M&A publication.
Unsurprisingly, Anglo sold Anglo Platinum shares at a discounted price (JSE: AGL | JSE: AMS)
This is Anglo’s idea of an orderly process vs. what BHP wanted
The platinum market is hugely depressed at the moment, so it’s not a great time to be trying to sell a significant chunk of shares in a platinum miner. Still, Anglo American decided that this is the right time to work towards a demerger of Anglo American Platinum, so they went ahead with a sale of 6% in the company anyway.
The price achieved from institutional investors? R548 per share. For context, that’s 12% below the price that Anglo American Platinum closed at last Friday. Anglo American doesn’t seem too bothered, as the company has raised R9.6 billion in the process and is marching forward towards its era of focusing on other commodities. If you keep in mind that corporate executives want a war chest and shareholders want value creation, you’ll understand how decisions like these can end up being made.
If Anglo is willing to get out of Anglo American Platinum in this fashion, I can’t wait to see how modest the price for De Beers will be one day!
The next step is the demerger of Anglo American Platinum in 2025, as Anglo American still holds 66.7% in the company after this disposal. They held as much as 78.6% just a few months ago before starting to sell shares in the market in two tranches.
Argent’s offshore expansion strategy means the strong rand has hurt growth (JSE: ART)
But the overseas businesses are performing well, which is what counts
Argent Industrial has been outspoken about the nonsense we’ve been dealing with in South Africa for the past few years. They also voted with their wallets, investing in various offshore businesses. This works well when the rand is weakening and bites you when it strengthens. The important thing for investors is to avoid getting caught up in currency moves that are beyond Argent’s control, focusing instead on how the businesses are actually doing.
Group revenue fell 3.3% for the six months to August and operating profit increased by 1.7%. HEPS moved just 3.7% higher to 231 cents. Although the South African segment saw profit before tax increase from R43.5 million to R56.4 million, the offshore segment experienced a drop from R128 million to R119.5 million thanks to the rand.
Argent misses a trick though, as the management commentary in the financials doesn’t include anything around constant currency growth in the offshore businesses. If rand strength continues, they need to get better at telling the story. Lovely as it is to see the UK and America performing in line with expectations, the market prefers seeing percentages rather than long sentences.
Given how blunt Argent has been about South Africa, it’s great to see them noting an expectation for the local economy to improve by February 2025 thanks to interest rate decreases. Let’s hope!
Brikor’s profits have dropped (JSE: BIK)
We should have detailed results soon
Brikor has released a trading statement for the six months to August. It doesn’t look good, with HEPS expected to drop by between 56% and 63% for the interim period.
This puts it on a range of 1.00 to 1.20 cents per share, so at least there is still a profit! For context, the share price is 17 cents, although there’s almost no liquidity in this stock.
Detailed results are due to be released before the end of November.
Even in the best year we’ve seen in South Africa in ages, Brimstone has gone backwards (JSE: BRT)
The net asset value per share has decreased this year
If you enjoy watching your money go sideways, then Brimstone is worth considering. The discount to intrinsic NAV is substantial and the intrinsic NAV per share somehow managed to be lower as at September 2024 than it was in December 2020 during the pandemic!
The fully diluted intrinsic NAV per share is R10.83. The current share price is R4.91. Spot the problem?
Here’s the other problem: the fully diluted intrinsic NAV was R11.88 at the end of December 2023, so it managed to decrease 8.8% over nine months despite the South African market experiencing a strong rally.
The saving grace for the share price has been a reduction in the discount to NAV in the market, so the share price went up over that period despite the intrinsic NAV dropping.
EOH’s name change to iOCO has been approved (JSE: EOH)
The announcement includes a positive narrative around recent performance
EOH’s shareholders have approved the change of name to iOCO, bringing to an end a difficult era for the company that led to the EOH name being synonymous with poor governance in South Africa and a time when relationships between government and corporates were less than savoury. Those days are hopefully behind us as a country.
They are certainly behind iOCO (yes, I’m only using the new name from here onwards), with the group cleaned up and focused on the future. Whilst I still struggle to get excited about any kind of investment case here, the announcement with the results of the vote at the AGM also included an encouraging market update at the bottom.
They note a strong start to the financial year, driven by not just the cost-cutting initiatives, but also improved gross margin. They go on to talk about being on track to achieve the set targets and strategic goals.
That sounds like a good start to a new era!
Trading density growth is boosting Hyprop (JSE: HYP)
The foot count trend in South Africa is worrying though
Hyprop has released a pre-close operational update dealing with the four months to October. Someone really needs to tell them that we don’t need several paragraphs dealing with the names of stores that have opened in the malls. Nobody really cares – we just want to see the numbers.
For example, a drop in office vacancies from 27.4% to 17.7% is important information. A positive weighted average reversion rate of 6.7% is also important. These are the stats we want.
In South Africa, trading density is up 3.9% for the four months and tenant turnover increased 5.2%. Foot count tells a less promising story, down 0.2% over the period with August as the only strongly positive month for some reason. It feels like people are buying more and more stuff online in South Africa, which is something to keep an eye on for premium malls over the long-term.
Rent collections are up by a juicy 14.1% for the four months in South Africa, but that’s due to the inclusion of the Table Bay Mall acquisition. I still think they overpaid for that asset, but time will tell.
In Eastern Europe, things still look excellent with a vacancy rate of just 0.2% and trading density up 9.4%. Foot count is also positive there, up 1.6% over four months. Rent collections are up 7.9%.
The loan-to-value ratio has improved to 35.2%, driven by the disposal of the sub-Saharan Africa portfolio. This gives them confidence to approve R550 million for capital expenditure in the South African portfolio for this financial year. Even with that expectation, they are looking to increase the dividend payout ratio going forward.
Nampak swings into profitability (JSE: NPK)
And yet the share price dropped 12.5% on the day of this announcement
The efforts to save Nampak have been quite something to watch. After selling off non-core assets and getting the balance sheet to the point where there will actually be a Nampak going forward, it’s now about delivering sustained and growing profitability.
A trading statement for the year ended September paints a promising picture. HEPS from continuing operations is expected to be between R31 and R35, a vast improvement on the rather daft headline loss per share of over R390.05 in the comparable period.
For total operations, HEPS will be between R12.50 and R14.50, again much better than the even more ridiculous loss of R468.12 in the comparable period.
Detailed annual results are expected to be released on 2 December. Nampak’s share price is up 145% year-to-date, though it did take a 12.5% knock on the day of this announcement to close at just over R400 per share.
Based on Tsogo Sun’s numbers, casinos are becoming less desirable assets (JSE: TSG)
Is online sports betting scratching the itch for more people?
Traditional gambling assets have been under pressure for a while now. I remember how these casinos were bustling 15 years ago, when I would sometimes play poker to supplement my student income or spend money on blackjack as part of a fun night out. These days, I literally do not know a single person in my life who goes to the casino. Well, unless they do so quietly, which then proves my point anyway.
Times change and so do consumer preferences. Online gambling and sports betting seem to be all the rage, leaving casinos with high fixed cost bases and declining economics. Tsogo Sun’s results for the six months to September reflect income down 4%, adjusted EBITDA down 10% and HEPS down 15%. Would you bet on that improving?
Despite the drop in HEPS, the interim dividend per share has been retained at 30 cents. HEPS came in at 73.1 cents, so they have enough space in the payout ratio to avoid committing the biggest sin of all for corporates: cutting the dividend.
The best casinos (like the flagship Montecasino asset) are still doing reasonably well. Casinos in outlying areas are really struggling. Although Tsogo is investing in the online gambling space and getting a piece of that action, they sit with a large portfolio of fixed assets that seem to be losing their shine.
Nibbles:
Director dealings:
An example of a director putting in place a financing or derivative structure can be found at Discovery (JSE: DSY), where the founding directors do it regularly. The latest example is Barry Swartzberg, where a collar structure has matured and the Discovery share price is above the strike price on the call options, leading to Swartzberg being forced to sell R157 million worth of shares. Adrian Gore also features, with sales worth R101 million. This is what it looks like to give away upside in order to gain downside protection! Gore has entered into a further collar structure, with a put option at a strike of R166.61 per share (downside protection) and a call option at a strike of R297.94 per share (giving away upside above this level).
An associate of a director of EOH (JSE: EOH) bought shares worth R10.725 million.
A prescribed officer of Thungela (JSE: THA) sold shares worth R5.4 million.
The CEO, CFO and company secretary of Mr Price (JSE: MRP) received share awards and all sold the entire lot (not just the taxable portion) for R4.5 million. At this high P/E multiple, I would do the same. The momentum in the Mr Price share price has been a little crazy this year.
The CFO of Lewis (JSE: LEW) is “rebalancing his portfolio” with a sale of shares worth R2.3 million.
An associate of a director of Afrimat (JSE: AFT) has sold shares worth R1.9 million.
Two directors of a major subsidiary of RFG Foods (JSE: RFG) received share awards and sold the whole lot for R570k.
Zeder (JSE:ZED) announced that the disposal of Novo Fruit Packers for R195 million (plus the value of stock of R1.7 million) has met all conditions precedent and that the selling price has now been received.
Accelerate Property Fund (JSE: APF) needs to go back to the drawing board for the related party settlement agreement dealing with the claims by Accelerate against ex-CEO Michael Georgiou and vice versa. This relates to the development of Fourways Mall. The suspensive conditions in the agreement were not fulfilled on time, so the parties need to conclude a new agreement which they say will be on substantially the same terms.
After recent transactions and based on the terms of the cession of voting rights agreement between Titan Premier Investments (the Christo Wiese investment vehicle) and Brait (JSE: BAT), Premier Group (JSE: PMR) has announced that Titan’s beneficial interest in Premier has decreased to 44.5%. The direct economic interest remains unaffected at 31.5%.
Three directors of Stor-Age (JSE: SSS) have put in place a new loan facility, secured by the pledge of shares. It bears interest at prime less 0.75% and has a 36-month term. Total facilities for the three directors come to around R58 million. This is common practice in the property sector. It could lead to director dealings in future, depending on how the loan vs. share price plays out.
Despite a tremendous amount of noise around governance issues at Quantum Foods (JSE: QFH) and disputes with shareholders, Northam Platinum (JSE: NPH) has appointed Wouter Hanekom, the current chairman of Quantum Foods, to its board as an independent non-executive director. Hanekom has plenty of corporate experience, but it’s interesting that Northam is happy to potentially be dragged into that mud through this appointment. The board obviously really wants him there.
Rex Trueform (JSE: RTO | JSE: RTN) is increasing its stake in Belper Investments by 6.99% to 79.02%. This is an unlisted property fund focused on the Western Cape and specifically Epping. The price for the additional 6.99% is R4.7 million, despite Belper being in a loss-making poisition.
Datatec (JSE: DTC) will commence its share repurchase programme on 28 November, so the company itself will be on the bid in the market.
Visual International Holdings (JSE: VIS) has reported results for the six months to August. With the share price at R0.03 and a market cap of R12 million, very few people are interested here. It doesn’t help that the operating loss increased from R3.75 million to R5.2 million.
In this episode of The Trader’s Handbook, Shaun Murison from IG Markets South Africa joined me to discuss the advanced tools available on the IG platform that empower traders to make informed decisions. From back-testing strategies and market scanning with Pro Screener to exploring client sentiment, alerts, and algorithmic trading, this episode highlights the cutting-edge features that simplify and enhance trading.
Whether you’re new to trading or looking to refine your approach, this episode provides practical insights into leveraging technology to stay ahead in the markets. To open a demo account, visit this link.
Listen to the episode below and enjoy the full transcript for reference purposes:
Transcript
The Finance Ghost: Welcome to episode 12 of The Trader’s Handbook. We’ve had a lot of fun on this podcast series. Shaun Murison of IG has been our guest on each show and there’s been so much to learn from him and from the team at IG as well.
In our last episode we covered demo accounts and why they are just so important for people to go and cut their teeth with monopoly money as I like to call it, before you go and actually have a funded account. Rather go and make the mistakes, learn the system, go and just get your head around how this whole thing works in a demo environment. Of course, the real benefit there is that you are getting access to exactly the same system that you would have if you had real money in your account. You get to just practice in the meantime.
That’s why in this episode we will be focusing on the technology sitting behind that system, some of its features, some of the good stuff that you can look forward to if you are an IG client or if you just want to go and open that demo account – go and check it out, if you are interested in the demo account, go to IG.com, it should autodirect you to whichever country you’re in. You’re probably listening to this in South Africa, so it’ll redirect you there. Go and check it out, go and open a demo account and start trading.
So Shaun, today is all about the tech of the trade as opposed to the technicals of the trade, which is how we’ve usually been finishing these episodes with some technical analysis. I think we’ll give that a break on this episode and just focus on what the system can actually do. Thank you as always for joining me for this. I’m looking forward to it.
Shaun Murison: Great to be back again.
The Finance Ghost: So I think first up, let’s start with this concept called back-testing. Now this is something I’ve certainly heard people talk about before. Basically the idea here is that you take a strategy that you think might work or some kind of approach to the markets, and then you want to actually see if it has any merit. And how do you do that? Well, the past is quite a good predictor of the future, in this case because I guess it’s just how people have behaved in response to a certain set of inputs. So that’s really what back testing is, trying to figure out how to actually go back and see what happened for a set of inputs. It’s quite a complicated thing, but apparently you guys do have some functionality there around backtesting, Shaun.
I think let’s start there. Let’s start with something really juicy. I’m keen to know what’s on the system for that.
Shaun Murison: Yeah, so IG has a function, a back-testing function on our advanced charts. There’s a saying that patterns often reoccur in markets and I think back-testing can help us identify those patterns. There are technical tools, so you could take a technical strategy, maybe looking at moving averages to gauge trend, we’ve talked about that, and an oscillator, like a stochastic to maybe trigger timing of an entry. Well, does that sort of system work?
You can test that over X amount of years on a particular market and see whether that has a statistical edge. Certainly what you’re doing there is you’re building a mechanical strategy and not only just the technicals – you can add in stop losses and take profits and you can tweak that system until you’re comfortable to use a system like that.
So it’s really about putting something under the microscope using our automated back-testing features. The really cool thing about that is that you don’t actually have to be a programmer. A lot of these software systems, you have to know how to program and look at things like Python and all these different languages to do that. Here, it’s really just if you can left click, you can do it. You click on the chart, you click on the indicator and you say you want to buy when it does this and you want to sell when it does that. So it’s an automated function, it’s called assisted creation. Really fun to use and quite a big rabbit hole once you get started.
The Finance Ghost: Yeah, I can believe it. That does sound like quite a fun way to spend a bit of time. A good reference there to the rabbit hole because I can imagine it’s quite easy to get swept away by some of this stuff. I guess the back-testing is all good and well because that’s trying to figure out: would this have worked? But of course, that’s not how you make money. You have to make money by actually trading and then getting it right.
And that, I think, is where the market scanning and screening tools would come into it. So screening is the terminology that I’m more accustomed to, obviously more of an investment lens from my side. That’s really looking at, just as an example, something like: I want to find things on a P/E multiple of less than 15x, growing earnings at more than 15% a year on the US market. Okay, great. You can plug those three things into an investment system and you can go and find all the companies that fit into that, and then you have to actually do the work to get through the noise, etc.
Now, in the world of trading, scanning is also about finding ideas. So it’s kind of similar to screening in investing, but I would imagine using very different metrics because as I’ve certainly learned on this series, trading is far more about chart patterns and technicals than it is about the underlying fundamentals of the business. So how does this work in the trading environment, this market scanning tool?
Shaun Murison: Well, you have access to both of those types of tools. And we do actually call it – maybe it’s me that calls it a scanning function, but we do call it Pro Screener. So we have a fundamental screener, so you can search for companies based on e.g. dividend yields, earnings yields in international markets. Still to bring it to the local markets, but we do have that available on the platform.
Then when you look at the technical side of things, we have something called a Pro Screener. So if you’ve developed a technical strategy that you’re happy with, I’ll use that example of having a moving average to gauge trend and then maybe using an oscillator like a stochastic to trigger entries and exits – you can now go into the market at a click of a button, you build the scan again, you don’t have to program it. And you can run it across all the instruments, across the world or locally. And it’ll trigger, it’ll pick up where your criteria for entering or exiting the market have triggered in the market. You can actually use that as a watchlist, so it will update real time, live – so it fits in well with the back-testing we talked about, you might develop a strategy and think I’m happy with this type of strategy. And then you can go and scan the market using the Pro Screener function to see where that criteria has triggered in the market. You don’t have to sit and manually look through each chart. You can just automate that process.
The Finance Ghost: So scanning, screening, tomato, tomato, all the same stuff really, but ultimately just a different lens and a different outcome. Investing versus trading, that is how you find ideas. You’ve got to have your system and then you actually go through and scan for them. And it’s very, very powerful tool.
But it’s also not the only way to generate trade ideas because within the IG platform there are also trade ideas that are generated by a third party. I have seen some of that. Just to confirm with you, how does that work and how often do these ideas come out, who’s actually doing them? And is it mainly South African assets? Is it indices, is it global, is it a bit of everything?
Shaun Murison: So it’s indices, commodities and currencies, third party trade ideas. We used to call it Signal Centre, now I think it’s just called Signals. Basically, it’s taken the two companies there that we’re getting trade ideas from – Autochartist and a company called PIA First. It’s independent analysis. The one runs algorithms which are automated, the other one is a manual approach, but they input it to the system. So they’ll say, okay, we think that this is where they’re looking to buy on this criteria. This is where they’d look to exit if the market moves favourably for them or if it moved against them.
You can assess your risk and reward. So if you like that idea again you can just – I always say make your own decisions – but you can reference other opinions out there. And that’s quite a good tool for that. But if you did like that idea, you can copy that order and you can actually place a trade from that guidance from that trade setup. Really, really cool tool on that.
I think there’s lots, depending on what your flavour is in terms of trading. Signals is one thing, third party reference, you can use the back-testing to test your own strategy. Maybe cross reference it with that. Always good to just check up on that live news feed that we do have on the system to see what is moving markets right now, what could be changing sentiment.
And then just looking at that economic calendar, we have quite a cool feature there where you can just pop that economic calendar – the key points, things like inflation, interest rates, announcements, things like that, onto the chart. I can show you what is expected of the news, what the previous figure was. Generally, better than expected is good for the market and worse than expected is bad for the market. Lots of different tools there that you can aggregate together.
So Signals is one, third party ideas, you can generate your own ideas with the facilities there and you can cross reference and just be aware of news items through those economic calendars and those news feeds, those live news feeds.
The Finance Ghost: Yeah, that’s really important, right? You’ve got to have this constant handle on what’s coming in from a market perspective. That’s something I actually wanted to ask you about, is that you’ve referenced before how markets are really just big voting machines and the share price or the index price – I still have to reference share price, I can’t get out of my head – or the currency price or whatever it is, is just a function of all these votes coming into the market. Literally – yes, no, buy, sell and here’s the thing in the middle.
These news feeds are very important because a lot of trades are in reaction to news. You’ve referenced it there in terms of the ideas, but it’s also about planning your trades, right? It’s about looking ahead at that calendar, what’s coming out, some of the other news feed stuff. And obviously news is news, it’s breaking, generally it’s not something that you knew was coming, but not always. There’s other stuff linked to economic calendar type stuff – when the Fed is making a decision about interest rates, that’s one part of it. But then there’s all the news about the press conference afterwards and how people are reacting to it and the whole story. Being able to build that world out with all those alerts and that plan, that’s very important, right?
Shaun Murison: Yes. And you can do that on the system as well. So you can set alerts. you’d have the platform which you can log into from your browser, but you also have the app that you can download to your phone and they link. If you’ve got the app on your phone, you can set alerts to economic data so you don’t actually have to miss it. You might be out on the road, have a normal job and you’ll have a little pop-up notification, push notification that can come to your phone. You can also have it email you.
Not just on the fundamental data or the news data or the scheduled news data – like you said, sometimes we don’t know news that’s coming out, but also maybe you’re just watching some shares or forex price and you want to be alerted as to when the price gets to a certain level, because that might be somewhere where you’re looking at buying. And you can set that system as well and it’ll pop up with the push notification. And even further than that, if you want to get really technical, you could set up oversold indications or other technical indicators and get that push notification just to alert you that, okay, well, this market’s now moved into oversold.
And then you can reassess and say, okay, well, is this an opportunity for me? It’s really, really cool. Those alert features are very, very useful when you’re serious about trading. Take the time to set up your workspace to set up these notifications, know what you want to do, know when you want to buy, what price that you want to buy, know what news items are coming out that could change the direction of a market, whether you’re in it or you’re looking to get into it.
The Finance Ghost: Yeah, absolutely. That’s a big part of it. And what is also quite interesting is your client sentiment data, because that is basically everyone taking all of this stuff, economic calendar, news feed, you know, notifications around stock levels etc. and then reacting to it with trades like buys or sells or whatever the case may be, pairs trades and all kinds of stuff, which are just combinations of these things. Client sentiment is whether or not people, on average, expect something to go up or to go down. And you can certainly make money by being contrarian. But I think in trading, being contrarian is quite dangerous. That’s something that I definitely learned on the demo account. Investing with a contrarian lens can work quite well if you know what you’re doing. Trading with a contrarian lens, on leverage especially, is not necessarily the safest strategy in the world. I guess understanding sentiment is quite important. And IG does have some stuff around that, right?
Shaun Murison: Yeah. So on each instrument, you can see how IG clients are placed. It’ll show you a client sentiment button when you log into the platform. Just click on that little button – let’s say you’re looking at a share like Sasol, or a currency pair, whatever it may be, and it’ll show you how clients are placed. It might say that 70% of IG clients are long and that means 30% are short. So, 70% think the price is going up, 30% think that’s going down. it’ll show you how recently those trades came into place over the last hour, what the sentiment was over the last day, over the last week.
I think what you need to take into account is that most of IG clients are retail traders, so it is a retail sentiment. IG obviously is one of, if not the largest CFD provider in the world. It’s quite a good reference to retail sentiment.
In terms of the contrarian view, there are different outlooks on that. But one of the thoughts is that when markets are in trending environments, that’s where it works best as a contrarian indicator. The market is say in a strong uptrend, it’s been rallying, the initial instinct for retail traders is okay, well it’s gone so far up, surely it’s got to come back down now? They look at taking short positions, but that’s obviously not the case, and that’s where it’s most likely to be a contrarian indicator. When markets are a bit more range bound and moving sideways between levels, you find that that’s not really a good contrary indication.
The Finance Ghost: I think let’s talk stop losses, which is something that’s quite important when you are just trading in general, especially if you’re going to take a slightly contrarian view depending on how you want to play it.
Stop losses keep you out of trouble. Well, they can keep you out of trouble depending on how you set them up. And that’s the point here. We’ve talked about stop losses before. This is definitely not the first time in the season where we’ve spoken about this, but I think it’s always worth doing it again. There are different types of stop losses on the IG platform. I think there are three types. So I think, let me open the floor to you to kind of just run through them so people can understand how important they are and what the differences are.
Shaun Murison: We have to manage our risk in the market. We go in there, we want to make money, we don’t go in there to lose money – that’s not why we trade. But we have to prepare for if the market moves unfavourably, obviously a stop loss is to protect us if it moves unfavourably against us.
Now with a normal stop loss, what you can have is that you have your order at a particular level to get out if the market moves against you. Then maybe you have overnight gap risk and actually opens up lower and you get something called slippage, so you end up actually losing slightly more than what you had put into the system. That moves to something called a guaranteed slop loss where we take on the risks and you can’t lose more than what you anticipated if you’re using a guaranteed stop loss. But for that then we’ll charge a slight premium, which would vary depending on the instrument that you trade in.
Then the third type of stop loss that we look at is a trailing stop loss. And these are obviously all automated things that we put in the systems, whether you do it via the mobile app or via the platform. A trailing stop is actually maybe a bit misleading, because you can actually use that stop loss to try lock in profit. The market’s moving in your favour, you have a stop loss and then it keeps that stop loss tightly behind the price. The more it moves in your favour, the higher your stop loss moves up. You’re just trying to rally and capture as much of a trend as possible. Eventually when it does start to turn around, you might get kicked out of your trade, but your stop loss now is actually in a profitable position because it’s ratcheted up as the trades moved in the right direction for you.
So, normal stop loss, guaranteed stop loss and a trailing stop loss. Trailing stop loss is to try and maximise a trend. Guaranteed stop loss is to prevent slippage from happening. A normal stop loss, which most of the clients use, you’re not going to get that much slippage if you’re trading highly liquid markets. When you start trading illiquid markets, that’s where it becomes a little bit more likely for you to get slippage.
The Finance Ghost: So last little juicy topic, because you actually referenced this earlier, I think when you were talking about the back-testing, and that is algo or algorithmic trading. Now I remember from my banking days and I had a few years of those, that was still in a time when the banks had prop trading desks, which meant they weren’t just flow trading on behalf of clients, they were actually trading off the bank’s balance sheet. They were literally traders sitting there with an annual P&L budget. It was really fun to get to know them and see what they were up to. I distinctly recall seeing one or two algorithmic traders busy building these very hardcore models and it all looked quite interesting. But ultimately, in the wake of the global financial crisis, banks had to actually just shut it down. It just wasn’t worth them doing it anymore. The regulatory requirements were too onerous and a lot of that activity has now moved into hedge funds. Basically that’s where that prop trading has gone.
Algorithmic tools basically just mean automated trading rules that you set up. It’s like setting up an auto forward on your outlook very simplistically, but doing that in the markets. What tools do you have in the IG platform to do this kind of thing?
Shaun Murison: Yeah, so an automated trade, algorithmic trade could be something like we’ve just talked about – a stop loss, because that’s an automated feature. It could also be something like your take profit levels.
But when you’re building strategies – and early on we referenced the back-testing side of things – what you can actually do now is you’ve taken a strategy, maybe you’ve seen that it has a statistical edge historically, now you want to trade it going forward.
You’re not always going to be in front of your computer to take every opportunity. You can take that back-test and literally just at a click of a few buttons, convert it into an automated system, so it’ll automatically trade your system going forward on the criteria that you’ve set. We do have that technical function of creating algorithmic trading and it’s not that difficult to set up. Like I said, when you’re doing the scans and the screening, the back-testing, it’s all assisted creation.
So with algorithmic trading, that is something you can do from our advanced charts as well with that assisted creation. You don’t have to be a programmer, just be sure of your strategy when you start to do that. If you are unsure, you can set up that instead of just trading for you, you can set it to alert and pop up with a deal ticket and you still have to manually execute the trade if you just want to double check everything, which is probably the best way to start. But if you’re comfortable, and you’re very comfortable with that, you can actually have this thing trading for you automated all the time.
The Finance Ghost: The point is there is a lot to get to know. And I think the one concept that came through when we spoke about demo accounts in the last episode was something you alerted me to, which the more I thought about made a lot more sense, which is that a lot of people have got a live account and a demo account and the point is that you can go and try stuff out in the demo account and then bring it across into a live environment when you are ready. The demo account is not just there to say, okay, let me learn how to go long or short, really basic stuff when you’re just starting. It’s actually there to also do some of this more advanced stuff, the algorithmic stuff, the back-testing if you want to, although that you can do that in a live environment because back-testing doesn’t mean you’re actually trading. But all those concepts, you can then go and actually set up in a demo environment and just cut your teeth on that kind of stuff and then bring it across when you feel confident.
Shaun Murison: There are so many tools at your disposal. I remember when I started out trading, you had to pick up the phone to find a broker, the broker would execute the trade for you. The broker was the one with all the tools and all the fancy functionality and access to information. That information now has been democratised. Companies like IG are bringing it and putting it into the palm of your hand literally through the mobile app or through your web based application. Retail traders now have access to advanced tools and sometimes advanced doesn’t mean difficult to use. They can still be simple to use, which I think is the beauty about a lot of what we do offer.
But Rome wasn’t built in a day. Like you said, start off on the demo account, test out these things, navigate your way to what you feel comfortable with and what works for you. And when you’re ready, then move to live account environment or run it concurrently. I think the trick here is just don’t be in a rush. If you want to get started in trading, just go through the motions.
The Finance Ghost: Yeah, absolutely. That’s great advice and that’s exactly the way to do this, is to just go and open that demo account, get started, don’t be too terrified by everything you’re seeing out there. Treat it with a lot of respect, but also give yourself a chance to just get up the curve and learn what’s going on.
I hope that this podcast series has certainly helped you with that. There is one more episode to come after this one, so be sure to join us for episode 13. It really has been a pleasure Shaun.
If you’ve only joined us now on this episode, go back and listen to the others. There’s a lot of good stuff in there, even if you don’t get to all of them, just go and pick out the ones that appeal to you that you think will help you learn something. Even if you’re a relatively seasoned trader in one asset class, you might actually really enjoy one of the shows dealing with a different asset class, so there’s always something to learn.
Shaun, thanks as always for your time and I look forward to doing our last episode with you soon.
Anglo American looks to sell 6% of Anglo American Platinum (JSE: AGL | JSE: AMS)
This is all part of the planned “demerger” of the platinum assets
As part of focusing its group on what it has identified as its core operations, Anglo American recently announced the sale of its steelmaking coal assets and reminded the market that the demerger of Anglo American Platinum is coming in mid-2025. This would include Anglo American Platinum listing on the London Stock Exchange in addition to the JSE. There is now an important development in that demerger process.
As they work towards this (and frankly because Anglo American wants to get more cash), the group is proposing to sell around 6% Anglo American Platinum to institutional investors in an accelerated bookbuild process. The pricing is going to be interesting, with the share price down 38% this year and not much in the way of hype around the PGM sector to rely on.
Anglo American doesn’t intend to reduce its stake any further before the demerger of Anglo American Platinum.
Equites to sell a property in the UK (JSE: EQU)
The buyer is Amazon, who also happens to be the tenant
As part of its broader strategy of selling UK assets to reduce group debt and bring the proceeds home for its South African development pipeline, Equites Property Fund has agreed to sell a distribution centre in Peterborough to Amazon for £38.5 million on a transaction yield of 5.17%. Amazon is the tenant and there are 12 years remaining on the lease, so it’s clearly a strategic site for that group.
The last valuation performed on the property was £38.2 million, so the price is slightly above that. The proceeds will reduce the group loan-to-value ratio by 1.9%, taking it below 40%.
FirstRand’s lending margins are feeling the pinch from decreasing rates (JSE: FSR)
But of course, the credit loss ratio has seen the benefits
FirstRand has released a voluntary trading update for the six months to December. It’s big on narrative and low on actual numbers, so they are keeping us guessing here.
Overall, the performance is trending in line with previous guidance, so there are no big surprises here. In the South African business, much of the demand for debt is coming from corporates rather than retail borrowers, so this puts margins under pressure for FirstRand as corporates get a better deal. Combined with decreasing interest rates, this negatively impacts both net interest income (NII) and net interest margin (NIM).
In the UK, they are ahead of guidance in the lending business. Again, NIM is under pressure there, in this case because deposits growth is ahead of advances growth. In other words, they are accepting money from depositors and finding it difficult to lend it out quickly enough.
After a disappointing first half for non-interest revenue (NIR), the narrative is more positive for the second half. This is a key driver of return on equity for the bank.
It helps that the credit loss ratio at group level is better than expectations, especially thanks to South Africa. This is of course the benefit of a better environment with lower rates. You always have to look at the net outcome of the credit loss ratio and net interest income.
Expenses are also important of course, with the group ahead of guidance in this regard and showing an improved cost-to-income ratio.
The major uncertainty in FirstRand currently relates to the motor commission cases in the UK and the surprise court decision. There has been much support for the Supreme Court to hear the case, so there might still be a positive outcome here. In the meantime, FirstRand believes that the current provision is adequate.
HCI gets impacted by Impact Oil and Gas (JSE: HCI)
It feels like the name was tempting fate
HCI has released a trading statement for the six months to September. HEPS will be down by between 40.5% and 50.5%, so that’s not great news at all. The expected range is 480.7 cents to 577.8 cents.
The major negative impact was Impact Oil and Gas, so that’s easy enough to remember. This is due to large downward fair value adjustments of the investment in blocks offshore the South African south coast.
KAL Group’s dividend may be flat, but (almost) everything else is down (JSE: KAL)
It’s been a tough year for them
The year ended September 2024 won’t go down as the happiest of memories for KAL Group. Revenue fell 3%, gross profit was down 1.9% (so at least margins were slightly up) and EBITDA decreased 4.4%. By the time we reach HEPS, there’s a 9.2% decrease to 561.58 cents.
Net cash from operating activities also went the wrong way, down 1.8%. Despite this, the gearing ratios thankfully improved and so the group felt confident enough to keep the dividend at 180 cents per share. The benefit of a modest payout ratio is that there are years where you can keep the dividend flat despite profits falling.
The pressure was mainly felt in the Agrimark segment, where revenue fell by 5% and profit before tax was down 10.5%. This is KAL’s largest profit generator, contributing 61.6% of segmental profits.
If you want to learn more about the group and ask management questions, then register for the next Unlock the Stock event on 5 December. KAL Group will be presenting their numbers and taking your questions, so it’s a lovely opportunity. Attendance is free but you must register here.
Life Healthcare’s international business gives a shot in the arm (JSE: LHC)
Be careful here with extrapolating these numbers
Life Healthcare has released results for the year ended September. Paid patient days in acute hospitals increased by 1.6%, so the core business is moving in the right direction. When combined with the growth in NeuraCeq, an exciting part of Life’s business, group revenue jumped 12.7% for the year. This includes the excellent once-off boost from the sub-licensing deal of Life Molecular Imaging’s early-stage novel products for R664 million.
If we consider just the Southern Africa business, we find revenue growth of 7.7% and normalised EBITDA growth of 1.3%. This is more like what I’m used to seeing from the hospital groups. It was the International business that came in with a huge year-on-year move, with revenue up from R656 million to R1.85 billion and a move from negative EBITDA of R113 million to positive R637 million.
You therefore need to be very cautious in thinking that this performance can be repeated in the coming year. Although the international business has great momentum, the South African business remains a modest source of growth. Going forward, the international business will need to be driven by NeuraCeq sales (which are admittedly firmly on the up), without the benefit of a windfall like a sub-licensing agreement – unless they get lucky, of course!
Pepkor wants you to focus on normalised numbers – and with good reason (JSE: PPH)
The base period included a 53rd trading week
Retailers that report based on trading weeks rather than calendar years will have a period every few years where there is an extra week. Naturally, this boosts the year that includes the extra week and hurts the year thereafter in terms of year-on-year comparatives.
Pepkor finds itself in that position, with FY23 as a 53-week year and thus the results of the year to September 2024 not being directly comparable without adjusting for that extra week. I would therefore go with their approach of focusing on normalised rather than reported numbers.
On this basis, revenue increased by 9.2%, operating profit jumped by a lovely 17.4% (thanks to a boost from gross profit margin as well) and HEPS was up 10.3%. One of the other adjustments to HEPS to arrive at normalised numbers was related to a lease modification gain.
Looking deeper, the clothing and general merchandise (CGM) segment saw revenue increased by 5.2%, while the furniture, appliances and electronics (FAE) segment was up 4.5%. Gross margin went up on the CHM side and down on the FAE side, coming in at 38.1% and 28.4% respectively. Despite that trend, it was actually the FAE segment that posted the better operating profit performance, up 22.2% vs. 12.0% in CGM.
Thankfully, after some tough times, there’s even improvement in Ackermans in terms of like-for-like sales and better gross margins. This contributed to ongoing market share gains.
As for Avenida over in South America, they are still aggressively expanding the store footprint and opened a second distribution centre as well. Performance wasn’t great in the second half though, impacted by the weather. They still managed 5.5% like-for-like sales growth for the year.
As those following this company will know, the major story going forward is the acquisition of Shoprite Furniture, which will be combined with the Pepkor Lifestyle group to unlock synergies and other benefits of scale.
Recent sales momentum is positive, although we still haven’t seen a particularly strong boost to more discretionary categories. In the 7 weeks to 16 November, CGM segment sales grew 16% and FAE was up 6%.
Purple Group is firmly in the green (JSE: PPE)
This will go down as a landmark period for them
Purple Group released results for the year ended August that tell a great story. Revenue increased by 45.1% and operating expenses were up just 7.6%. Naturally, this means that profit gently went to the moon, up 206%! This drove HEPS of 1.77 cents, a huge improvement from a loss of 2.05 cents in the comparable year.
I must point out that this means that (1) they are still negative when viewed over two years and (2) the share price of R1.13 is a gigantic Price/Earnings multiple. The market is assuming that they can keep this up, with the multiple unwinding quickly. We’ve been here before with the Purple share price, but hopefully this time it’s different.
One of the major improvements has been the introduction of monthly fees on the accounts, avoidable by users through the Thrive programme. This effectively deals with the issue of accounts with low levels of usage, as a major issue with the business model was that EasyEquities was reliant on brokerage income – and that only works in a period of very high activity.
A positive surprise in this result is the consistency of profitability at EasyTrader, the rebranded GT247.com. A more stable market environment has played a role here, but there have also been strategic actions by management to improve things here. EasyTrader offers a natural progression for EasyEquities users who show characteristics of traders rather than investors.
The expansion into the Philippines is taking longer than anticipated and remains firmly in the cash burn phase. Global expansion is never easy and this seems to be another example of a move that was perhaps too optimistic in terms of timing. Thankfully, the South African operations have improved to the point where the group is profitable overall, so they are in a better position to incubate the opportunity in the Philippines that could still be lucrative in the medium-term.
There are also a number of other initiatives at play, like EasyMortgages as an attempt to leverage the user base and act as a distributor of financial products. Importantly, Purple will not take on any credit risk here, at least not initially.
With active client growth in the past year of 10.4% and a 24.8% increase in client assets, the flywheel is spinning for Purple. Will it spin quickly enough to justify this share price? That’s the bigger question.
London’s West End continues to boost Shaftesbury (JSE: SHC)
It certainly is a lovely part of the world
When the sun is shining in London, there’s nowhere else quite like it. The city attracts seemingly endless wealth from all over the world, which means the luxury market is thriving and so are the retail properties aimed at these markets. The sun may not shine all year, but the property market seems to do pretty well anyway.
Shaftesbury is enjoying a low vacancy rate and positive rental reversions across all its property types – even offices! The trading update for 1 July to 11 November sets a strong foundation for the end-of-year shopping season that is no important for retail and hospitality tenants.
To add to the strong underlying growth, Shaftesbury has been recycling capital into what they call asset management opportunities – properties where they can make changes and unlock decent returns as a result. With a loan-to-value ratio of 29%, Shaftesbury can afford to have fun with its portfolio rather than spend its days stressing about debt.
Stefanutti Stocks: a casual 506% jump in profit (JSE: SSK)
Theshare price is up 265% in the past year – also not a typo
If you enjoy low-stress investments that help you sleep at night, run as far as you can from the construction sector. When things are bad, they are really bad (even for the big names like Murray & Roberts). When things improve off a bad base, the percentage movements (and gains in the process) can be immense.
Stefanutti Stocks shareholders are enjoying the latter phase, with results for the six months to August reflecting 2% growth in revenue from continuing operations and a rather daft 113% increase in operating profit from continuing operations. By the time you reach profit for the period from continuing operations, the gain is 506%!
But then you get the discontinued operations, where the losses are worse by 557%. By the time this rollercoaster ride is over, profit from total operations improved from a loss of R2 million to profit of R2.8 million. To make things even messier, liabilities still exceed total assets, so the group simply has to deliver its restructuring plan and win the ongoing support of lenders.
As though you need any further complexity here, there’s also the ongoing claims related to the Kusile Power Project. Although the company hasn’t recognised the value of the claim in the financials, punters of this stock are certainly putting some value on it.
Vodacom and Remgro appeal the Competition Tribunal decision (JSE: VOD | JSE: REM)
The Tribunal hasn’t even made the reasons for its decision available yet
The Competition authorities in South Africa are doing an incredibly good job of ruining the GNU party. Regulatory overreach is becoming more and more of a problem, with the prohibition of the Maziv fibre deal as the last straw for many.
I cannot for the life of me understand how it makes sense to block a deal that would see so much additional investment flow into internet connectivity for the masses. It’s almost as though someone of great influence would prefer it if people don’t have access to information!
Of course, it would help make the decision less weird if the Tribunal would actually release their reasons for the decision. It certainly took them long enough to make this decision, so it’s hard to understand why the reasons aren’t available yet.
In the meantime, the transaction parties (including Vodacom and the Remgro investee companies) will appeal the decision in the Competition Appeal Court. In the absence of compelling reasons why this deal was blocked, I’m hoping this is the egg-on-face moment for a regulator that has been flexing its muscles in ways that don’t always seem related to competition matters. We need free markets, not regulatory interference.
Mid-single digit dividend growth at Vukile (JSE: VUK)
But the rand has impacted the NAV per share
Vukile Property Fund has released results for the six months to September. Like-for-like net operating income growth was 4.6% overall and 2.1% on a normalised basis. The loan-to-value ratio sits at 35.4%, so the balance sheet is in a decent position. This is reflected in the credit rating outlook being upgraded from stable to positive.
Despite the group being busy with significant acquisitions in Portugal in particular, the interim dividend has moved 6% higher. By all accounts, Vukile is doing what it should be doing: growing at or above inflation, while continuing to improve its portfolio.
The negative part of the story for South African investors is that the net asset value (NAV) per share has decreased by 1.8% based on the strengthening of the rand. You can’t have your cake and eat it unfortunately. The rand hedges (funds with extensive offshore interests) were great for a long time as the rand kept depreciating. This GNU-inspired year has been a different story.
The important thing is to look through the currency noise and decide whether you are happy with an expected growth in the dividend of between 4% and 6% for the year ending March 2025, assuming a stable currency.
Zeda’s profits have taken a knock from the used car market (JSE: ZZD)
This was always going to happen at some point
The pandemic was a crazy time in our lives for many reasons, not least of all the spike in used car prices based on low interest rates and lack of availability of new models. This did great things for car rental businesses that were reducing their fleets at the time, as they suddenly found themselves in the same position that a garden nursery enjoys: their inventory was going up in value every day!
Those days are over (for used cars, not plants) and things have therefore normalised for Zeda. This is why record revenue and growth of 14.5% on the top line hasn’t translated into a great result for shareholders, with operating profits down 5.6%. Due to forex fluctuations and the impact of a normalised tax rate vs. last year’s much lower rate, HEPS fell by 18.1%.
Looking through the cyclical noise, the debt ratios improved and so did the amount of cash on the balance sheet. Zeda is in a strong position overall and is still achieving solid returns for shareholders, like return on equity of 23.1% for the year ended September. With the first debt issuance in the DMTN programme planned for FY25 and as a dividend paying company, I also feel comfortable about the level of financial maturity here.
With HEPS of 312 cents, I’m still a happy shareholder here. Even at the current price of R14.29, it’s a P/E multiple of 4.6x which is hardly demanding. I bought in at an average price of R11.84, so no complaints.
Nibbles:
Director dealings:
A prescribed officer of Gold Fields (JSE: GFI) has acquired shares worth $301k. Although the wording is a little odd, it sounds like this is part of meeting the company’s minimum shareholding requirement.
The ex-CEO of Italtile (JSE: ITE), who is still a non-executive director) has sold shares worth R3.5 million.
Acting through Titan Premier Investments, Christo Wiese has bought another R292.5k worth of shares in Brait (JSE: BAT)
If you are interested in ADvTECH (JSE: ADH), then the presentation from the company’s recent strategy day will certainly be worth reading. There are a meaty 70 slides and they go into great detail around the underlying demographic trends and how these affect the school strategy. You can find it here.
Attacq (JSE: ATT) has released a pre-close update, with the most important point being that they are on track to achieve guided growth in distributable income per share of between 17% and 20%. This is despite the ongoing challenge of negative reversions in the office portfolio – or the “collaboration hubs” as Attacq likes to call them. I must point out that turnover and trading density growth in October 2024 was below target, hopefully just a small wobbly before the all-important festive season. The all-in weighted average cost of debt is down 30 basis points since June 2024, so those benefits will be felt as well.
RH Bophelo (JSE: RHB) released results for the six months to August. There’s very little liquidity in the stock and the market doesn’t seem to pay much attention to this healthcare group, evidenced by a net asset value (NAV) per share of R16.29 vs. the share price of just R1.84. This is despite the NAV per share increasingly considerably from R13.76 to R16.29 in the past year! Recent investments by the group have been in the dialysis and radiology markets.
MAS P.L.C.(JSE: MSP) has released a cautionary announcement regarding negotiations to potentially acquire Prime Kapital’s 60% interest in PKM Development Limited. This would give MAS access to the high quality properties in that joint venture, a simplified structure and better access to debt. At this stage, there’s no guarantee of a deal happening.
Deneb (JSE: DNB) put the minimum effort into the latest SENS announcement and didn’t include any management commentary, so they get kicked down to the Nibbles on an otherwise very busy day. For the six months to September, revenue increased 2% and HEPS fell by 13%. A quick scan of the income statement shows that the problem was in the other income line, which came in substantially lower year-on-year. I wish I could tell you why, but unfortunately the company didn’t give the market anything to work with.
On such a busy day, Efora Energy (JSE: EEL) is only getting a passing mention. Revenue for the six months to August was only R2.9 million and the headline loss per share came in at 1.54 cents.
Copper 360 (JSE: CPR) has released a trading statement for the six months to August. As they are still firmly in mining startup mode, the year-on-year move in HEPS isn’t the most useful information. Still, the headline loss per share for this period was between 10.85 cents and 12.50 cents. For context, the share price is 290 cents.
For all the beautiful billboards and advertising, the Altvest Credit Opportunities Fund (part of Altvest JSE: ALT) generated interest income of R11.9 million in the six months to August and made a profit before impairments of R2 million. After credit loss allowances of R8.9 million and admin expenses of R10.3 million, the loss before tax was a whopping R17.2 million. They are sitting on a lot of cash that needs to be disbursed, so that will clearly be the focus going forward.
Conduit Capital (JSE: CND) has agreed to sell its 51% interest in Century 21 for R7.24 million. Yes, you are correct that this is the property agency franchisor that has 51 franchises. It made a profit for the year ended June of R2.4 million. I genuinely cannot believe how little money this business actually makes for such a well-known brand! It’s clearly not as lucrative as I though to own estate agencies.
Shareholders of Trematon (JSE: TMT) voted almost unanimously to dispose of the 60% interest in Aria Property Group. The remaining condition precedent is approval by the Competition Commission, which they hope to obtain by 6 December.
Sable Exploration and Mining Limited (JSE: SXM) has added its name to the list of companies that recently transferred to the General Segment of the Main Board of the JSE. This is an administrative decision that impacts the way in which the listings requirements are applied.
I doubt strongly that you are a Deutsche Konsum (JSE: DKR) shareholder, so I’ll give the latest business update only a passing mention here. Rental income is down 2.9% year-on-year and funds from operations also dipped. The focus is on the balance sheet, where the leverage ratio reduced from 61.6% to between 57% and 60%. This fund quite simply has too much debt.
Another complete oddity on the JSE is Globe Trade Centre (JSE: GTC), with the company having released its results for the 9 months to September. Revenues are up 3%, funds from operations came in slightly higher as well and the net loan-to-value has decreased from 49.3% to 48.8%.
After a very odd journey to get to this point, Numeral (JSE: XII) – previously called Go Life International – has managed to recover 50% of Cryo-Save after a strange sequence of events that included ex-directors allegedly making misrepresentations and inserting themselves into corporate deals. It’s all very weird. Numeral plans to acquire another 1% in Cryo-Save, so they will be able to consolidate the results of this stemcell business going forwards.
Anglo says goodbye to steelmaking coal – and hello to $4.9 billion in potential cash proceeds (JSE: ANG)
The substantial changes to Anglo’s business continue
In the aftermath of BHP’s failed attempts to get a deal with Anglo American in front of shareholders for a vote, the Anglo board has had to scramble to deliver their stated value unlock strategy. The latest development in that regard is an agreement to sell the steelmaking coal assets to Peabody Energy for up to $3.8 billion, adding to the $1.1 billion expected from the already announced sale of the interest in Jellinbah.
These are two separate deals, so just keep that in mind.
The Peabody deal is structured as a $2.05 billion upfront payment, along with $725 million on a deferred basis and up to $550 million in price-linked earnouts. There’s also $450 million linked to the reopening of the Grosvenor mine. So, even if the deal closes, the total cash proceeds are still highly dependent on some underlying conditions.
This takes Anglo American a step closer to being a copper, iron ore and crop nutrients business. Along with the steelmaking coal disposals, they plan to demerge Anglo American Platinum by mid-2025 and sell the nickel business, with the process “well progressed” on that asset.
They also hope for a good outcome with De Beers, although the current trends in the diamond market are anything but promising. As you might have noticed last week, the pullback in capex at De Beers due to uncertainty in the diamond market just contributed to Murray & Roberts going into business rescue. I wouldn’t bet on a happy outcome for the overpriced stones.
A hard year for Barloworld, yet the dividend is up (JSE: BAW)
At least Mongolia is headed firmly in the right direction
Barloworld has released results for the year ended September 2024. The first highlight is that gross debt reduced by 29%. When a company starts with news about debt, you know that the income statement probably went the wrong way. Indeed, revenue fell by 6.9% and operating profit from core trading activities was down 12.6%. This sent HEPS from continuing operations 12% lower and HEPS from group operations down 21%.
Thanks to having a dividend policy of target dividend cover of 2.5x – 3.0x (calculated as HEPS/dividend), Barloworld was able to push the full year dividend 4% higher to 520 cents per share despite the drop in profits.
A quick look at the segmental report shows that revenue in Southern Africa fell 10.8% and operating profit was down 10.5%, so margins were consistent even in a period of lower revenue. They are coming off a period of heavy investment in replacement machinery by customers, so this is a typical cyclical move for them.
Ingrain also doesn’t have a great story to tell, with revenue down 0.7% and operating profit down 16%. Margins are far more sensitive to overall levels of revenue in that business.
As you might expect, revenue in Russia fell 20.7% and margins couldn’t survive that fall, with operating profit down 35.3%. The independent auditor’s report goes into great detail on the Russian assets, including the potential export control violations (remember the self-disclosure to the US Department of Commerce, Bureau of Industry and Security?) and the recoverable amount of the Russian assets, given an expectation of less activity and productivity in the next year. It’s tough on that side.
The highlight was therefore Mongolia, up a juicy 68.5% on the revenue line and 43.6% in operating profit. This is leading to a juicy earnout for the sellers of the Mongolian business.
With the Russian overhang, it’s not super surprising that the people who might take Barloworld private are insiders – the current CEO and a large existing investor. The market is waiting to hear more about whether there might be an offer on the table.
Boxer’s share register has been settled (JSE: BOX | JSE: PIK)
Pick n Pay retains a stake of 65.6% in Boxer
As announced last week, there was a feeding frenzy by institutional investors for the issuance of Boxer shares. The offer was oversubscribed at the very top of the offer range, which means institutions will get shares at R54 per share. I expect the share price to do very well on its first day of trading, given the level of demand here and hence the low allocation that institutions got relative to what they actually wanted.
The implied market cap of Boxer is R24.7 billion, with R8.5 billion raised through this process. Pick n Pay will hold 65.6% of Boxer and the new shareholders will have the rest. It’s quite something that this puts Boxer’s market cap above that of Pick n Pay!
Importantly, Boxer cannot issue any more shares for 365 days. There’s also a lock-up of Pick n Pay’s shares and shares held by members of senior management for 180 days. If Pick n Pay plans to sell shares into the market to fund their recovery, they will have to be patient.
With a solid mix of local and international investors and clear support among institutional investors, the group is in a good position going forward. I just wish Boxer had made space for retail investors to apply for shares at this price through a dedicated programme. Companies need to work harder at financial inclusion in South Africa.
Delta Property Fund seems to have stabilised – admittedly on a knife-edge (JSE: DLT)
They keep chipping away at a tough situation
Delta Property Fund has released results for the six months to August. With a loan-to-value ratio of 60.0%, things are tight to say the least. The good news is that the ratio is at the same level as a year ago, so things aren’t getting worse.
That consistency also comes through in distributable earnings per share, stable at 8.1 cents. Given the state of the balance sheet, I’m afraid that there’s no dividend for shareholders.
They really are doing their best to try and claw things back, evidenced by metrics like property operating expenses increasing by just 0.5% and administrative expenses down 2.8%. If any improvement in demand for B-grade office space does come through, they will be well positioned to finally have an easier time of things.
Until then, all they can do is manage costs and try and sell off buildings that have poor occupancy rates, reducing debt along the way. Lenders will hopefully come along for the ride, as there are still various funding facilities due to expire this financial year that need to be extended.
eMedia Holdings proves that you can make money from TV (JSE: EMH)
Perhaps MultiChoice should take some notes here?
eMedia Holdings has reported a set of excellent interim numbers for the six months to September. Advertising revenue came in 7.1% higher, so the audience is valuable. Although other revenue dipped 3.1%, they still managed a 16.2% increase in operating profit and a 14.9% jump in HEPS. The dividend has gone the other way though, down 22.2%.
Of course, the improvement in advertising is thanks to the disappearance of load shedding. If people can actually turn their televisions on, it’s amazing how much more content they will consume! It’s still incredible to think about just how terrible things used to be.
On the negative side, the Media Film Service business has still not fully recovered from the writers and actors’ strike in Hollywood. They expect to see some improvement in the second half of the year based on international productions coming to our shores.
While MultiChoice is out there betting the farm on building out an African streaming offering and hoping that the deal with Canal+ will go through, eMedia is finding clever ways to compete in the market. Hopefully, with load shedding now behind us, the share price can start to reflect this.
Frontier’s numbers have been impacted by a major investment programme – electric buses are here! (JSE: FTH)
They are playing the long game
Frontier Transport Holdings, owners of Golden Arrow Bus Services, reported an 18.6% increase in revenue for the six months to September. Despite this, HEPS increased by just 0.5%! What happened in the middle?
Before we get to that, at least the ordinary dividend was up 7%. The payout ratio was increased and the dividend came in at a respectable growth rate as a result.
One of the reasons for the low increase in profit relative to revenue is that operating expenses were up 20.4%, so EBITDA only came in 11.6% higher as margins were compressed. We then have to deal with depreciation and interest, both of which moved higher. Finance costs have increased based on instalment sales obligations to finance bus acquisitions, while finance income fell due to lower cash reserves after the payment of a special dividend.
Speaking of bus acquisitions, Frontier has invested in 120 electric buses from the BYD group. This is obviously a major investment that should pay off over time in the form of lower running costs. Investors didn’t get much in the way of profit growth this year, but this management team knows what they are doing as we start to enjoy a cycle of decreasing interest rates.
Invicta hurt by the strong rand – now there’s something you won’t read every day! (JSE: IVT)
Rand hedge stocks with international businesses work against you when the rand strengthens
Invicta has released results for the six months to September. Revenue was up by just 2% and operating profit increased by 11%, so the group did a solid job of turning limited revenue growth into a decent result for profitability. The 11% growth in profit is before forex movements though, which is where things go wrong for the numbers in this period.
Due to the rand strengthening against major currencies and especially the dollar, there’s a forex loss of R18 million in this period vs. a forex gain of R33 million in the prior period. The offshore expansion strategy has made Invicta a far more interesting and diversified group, but it does leave them vulnerable to a period in which the rand improves. I wouldn’t take our GNU year and extrapolate it into the future for the rand though, so I don’t think we will see many more severe moves like these.
Once the forex is taken into account, HEPS fell by 14%. Regardless, the share price is up 23% year-to-date as the market looked past the rand and got excited about global growth prospects in a decreasing interest rate environment.
Strong EBITDA growth at Netcare and a decent uplift in the dividend (JSE: NTC)
Mental health paid patient days are still growing faster than acute hospital days
Netcare has released results for the year ended 30 September. Revenue was up 6.3%, which was enough for normalised EBITDA to be 12.6% higher. By the time you reach the bottom of the income statement, profit for the year was up 15.8%.
HEPS as reported increased 11.9%, so you might be hoping for a double-digit increase in the dividend. Alas, adjusted HEPS was up 7.6% and that’s the basis on which they pay dividends, so the total dividend was 7.7% higher. That’s still ahead of inflation at least, as one would hope from an equity investment.
Revenue growth was underpinned by pricing increases and a 0.3% increase in paid patient days. If you dig one level deeper, you find that acute hospital paid patient days were up just 0.2%, while mental health was up 1.3%. The mental health business is still much smaller than the acute hospitals business, but is running at excellent occupancy rates.
The blemish on the result is the Primary Care segment, which saw operating profit fall 6.1% despite a 7.4% increase in revenue. There was a 3.1% decrease in medical and dental patient visits. It seems that Doctor Google is winning market share.
Net debt to EBITDA is steady, with a 5.5% increase in net debt excluding lease liabilities. It would be helpful to Netcare if interest rates kept dropping.
Oceana’s second half is a reminder that the oceans aren’t an easy place to make money (JSE: OCE)
The first half of the year was much tastier than the full-year numbers
When Oceana reported interim numbers for the six months to March 2024, they saw revenue growth of 12.1% and operating profit up 57.1%. It was a stellar set of results. Fishing is unfortunately a lot less predictable than we would like, so the release of full-year numbers has shown us that the second half was a different story entirely.
Full-year revenue is up just 0.7% and operating profit has climbed 9.5%. Although HEPS is 13.5% and the dividend is up 13.8% (a growth rate that nobody can complain about), investors can only wonder what might have been.
With a variety of seafood businesses in the group, there are always some that do well and others that came under pressure. For example, Daybrook in the US achieved record earnings in this period, contributing 72.2% of group operating profit for the year. Lucky Star enjoyed margin expansion, with operating profit up 23.7% despite revenue only increasing 0.3%. The hake operations went the right way. The same can’t be said for African fishmeal and fish oil (profit down 47.3%), as well as horse mackerel.
A dip in cash profits in South Africa put the balance sheet under a bit of pressure in terms of working capital. Combined with a higher capital expenditure programme, this led to net debt increasing by R546 million to R2.58 billion at the end of the period. The net interest expense increased from R192 million to R226 million.
It’s very difficult to forecast how market prices might change for the underlying seafood products. Supply and demand is so unpredictable in this space. Oceana can only focus on controlling their controllables, like ensuring that the wild caught seafood business has a reliable and adequate fleet to improve performance.
Octodec sees a drop in distributable income per share (JSE: OCT)
The dividend is therefore lower as well
Octodec has one of the most diverse property portfolios that you’ll find anywhere. They even have a significant portfolio of residential property, something that you won’t see often in the listed space.
Being diversified isn’t always a good idea of course. Distributable income per share for the year ended August fell by 7.5% and the dividend per share was down by the same percentage to 125 cents. Based on the current share price, this puts Octodec on a trailing yield of 10.3%.
The exposure to areas like the Johannesburg CBD is difficult. Octodec specifically references the unrepaired damage on Lilian Ngoyi Street, with tenants exposed to the site finding it very difficult to operate. This is such a good summary of how poorly managed Johannesburg still is, with government continuing to let the team down.
Another challenge is the exposure to government tenants in the office portfolio. Octodec suffered a negative reversion of 23% on a renewal by a large government tenant. If only government could fix roads as effectively as they negotiate leases!
Octodec expects growth in distributable income per share of between 3% and 5% in FY25, driven by factors like reduced interest rates.
Super Group jumps on news of a potential sale of SG Fleet in Australia (JSE: SPG)
After a tough year for the share price, this is the boost they needed
Super Group’s share price has been taking serious strain this year based on the challenges in the used car space and the German economy in general, as Super Group has significant business interests up there.
The latest news doesn’t help the German economy or that business in the slightest, but it might lead to a solid value unlock for shareholders thanks to a potential sale of SG Fleet in Australia. Pacific Equity Partners and affiliates have swooped in, looking to buy 100% of SG Fleet at a price of AUD3.50 per share.
Super Group has a 53.584% stake in SG Fleet and they believe that the price is compelling enough to justify entering into exclusive discussions and a due diligence process.
SG Fleet was trading at AUD2.68 per share before the news broke, so this offer price is a premium of around 30%. It was enough for Super Group to rally approximately 20% on the news, eventually closing 14.4% higher.
Unless there’s a typo in the announcement (and I strongly doubt there is), the prospective buyers have until 29 November (yes, just a few days) to get far enough in a due diligence to achieve a binding offer. If you’ve ever wondered why investment bankers work such stupid hours, now you know.
Nibbles:
Director dealings:
The non-executive chair of Primary Health Properties (JSE: PHP) has bought shares in a dividend reinvestment plan to the value of £3.4k.
Tiny cap Nictus (JSE: NSC) – the market cap is just R38 million – has released a trading statement for the six months to September. They expect a huge jump in HEPS from 6.94 cents to between 25.82 cents and 27.20 cents! That’s for just six months, so comparing those numbers to the share price of 71 cents becomes even more ridiculous.
YeboYethu (JSE: YYL) has released results for the six months to September. This is the B-BBEE structure linked to Vodacom. To give you an idea of how highly leveraged these structures tend to be, dividend income from Vodacom was R326.2 million and finance costs were R362.2 million! Despite this, the structures inevitably allow for ordinary dividends along the way, hoping that the underlying Vodacom share price will perform well enough to cover off debts when the structure matures. This is why there’s an interim dividend of 96 cents per share. For context, the YeboYethu share price is R20.
Metrofile (JSE: MFL) announced that independent non-executive chairman Phumzile Langeni will be taking on a new role of executive deputy chairman, with a defined scope of responsibilities focused on strategy and business development opportunities locally and in Africa. Lindiwe Mthimunye, an existing non-executive director, will take on the non-executive chairman role.
AYO Technology (JSE: AYO) announced that Pride Guzha will be leaving as CFO to take up the role of CEO at Sizwe Africa IT Group, a 55% owned subsidiary of AYO. Valentine Dzvova will replace him in the role.
Accelerate’s deal with Flanagan & Gerard has had a wobbly (JSE: APF)
Conditions haven’t been met in time – but the deal isn’t dead
Back in August, Accelerate Property Fund announced a deal designed to address the ongoing underperformance of Fourways Mall. It involves well-known property management experts Flanagan & Gerard as well as other parties.
The suspensive conditions for the deal haven’t been fulfilled in time, so the agreement has lapsed. Despite this, Flanagan & Gerard and Luvon (the joint property and asset managers) are on site and rendering services in respect of the mall.
Clearly, they do all want to work together, so negotiations are underway to conclude a new agreement on substantially the same terms. As always in corporate dealmaking, nothing is guaranteed – not until all conditions have been met, as you’ve now seen in this example!
Disappointing auction results at Gemfields (JSE: GML)
This is exactly what the company doesn’t need right now
The mining sector can really sting. It’s even trickier for something like precious stones, which are inconsistent in terms of how they come out the ground. To add to the volatility, pricing ebbs and flows based on jewellery demand and the behaviour of other suppliers at auctions, as there isn’t a liquid market for these stones in commoditised form e.g. like there is for an ounce of gold. On top of all this, companies like Gemfields then need to consider their capex strategies and balance sheet strength, all while trying to guess where prices might go.
TL;DR: it’s not easy.
The one-way traffic in the share price certainly won’t be helped by the latest auction results. Gemfields is off 36% year-to-date based on a cooling off in the precious stones market, with pricing coming off sharply. Much hope was placed on the higher-quality emerald auction that was held in recent weeks. Alas, the results are in and they are poor.
Only 70% of the lots offered for sale were actually sold, as pricing was below Gemfields’ expectations and the company refuses to flood the market with emeralds. Instead, they allow competitors (specifically another Zambian competitor) to sell stones at what Gemfields believe are unsustainably low prices. Gemfields investors better hope that they are right about the pricing claims, as this cannot continue for long. The price at this auction was just $113.96/carat, miles off the $167.51/carat achieved at the last auction.
This auction achieved just $16.1 million in sales. The preceding two auctions managed $43.7 million and $35.0 million. This is absolutely not what Gemfields needed to see at a time when there are jitters over the extent of capex in the context of the state of the market.
Murray & Roberts: a catastrophe (JSE: MUR)
Business rescue and a trading suspension is the next scene in this horror movie
I know that there is money to be made by buying real bottom-of-the-dustbin stuff in the hope that it comes right. Sadly, there’s also money to be lost. Those who sold Murray & Roberts in the middle of 2024 after a GNU-inspired rally must be feeling like absolute geniuses right now, as it’s not clear that there’s going to be much equity value left in this thing going forward. If you play around in high risk stuff, you must expect a variety of potential outcomes.
The recent results were a proper disaster, with Murray & Roberts as the unexpected casualty of the lab-grown diamond disruption. Key client De Beers has scaled back on its capex, which leaves Murray & Roberts’ Cementation business in crisis. This is exactly the problem in this end of the construction market: key client dependency.
The illiquidity in the group as a result of the debt struggles and now the pain in the Cementation business means that the OptiPower division has been incurring substantial losses, as that business needs more working capital than Murray & Roberts can provide. They just cannot afford these losses, as the banking consortium is waiting for repayment of R409 million in debt by January 2026.
Based on forecasts for the underlying businesses and the immense debt overhang, the board has concluded that the only way forward is for Murray & Roberts to be put into business rescue and for trading in the stock to be suspended.
They believe that the non-core assets (i.e. not the underground mining business) could be disposed of to settle the banking consortium debt and at least most of the post-commencement finance in the business rescue process. Then again, the Murray & Roberts board once turned down an offer of R17 per share from ATON because they believed it materially undervalued the company.
You’ll therefore forgive the market for being very skeptical about anything the Murray & Roberts board has to say about value.
Novus achieved better profits in the print division (JSE: NVS)
But volumes continue to decline in that business
Novus must be a pretty interesting business to run at the moment. They need to manage the ongoing decline in the print industry, as I think most people would agree that newspapers and magazines are a sunset industry. The fun part is that they get to extract the best possible cash flows from that business and apply them elsewhere, transforming Novus along the way.
In fact, the announcement of the results for the six months to September even makes reference to Novus becoming a more diversified investment holding company thanks to the deal to acquire just over a 35% stake in Mustek, thereby triggering a mandatory offer to other shareholders in Mustek.
Looking at the core businesses, you can clearly see where the growth areas are. The Print segment saw revenue decline by 0.9%, with the Education and Packaging segments (up 10.0% and 10.1% respectively) taking the group into the green with 3.3% revenue growth overall.
Operating profit tells a different story though. Gross profit margin in the print business jumped from 20.9% to 23.1%, largely due to base effects but still a move in the right direction. This was good enough to drive operating profit up from R34.9 million to R86.3 million, leading to a great overall period for the group.
The Education segment saw operating profit fall from R105.9 million to R90.4 million despite the uptick in revenue, while Packaging dipped from R38.6 million to R35.7 million. So, although the Print segment isn’t the growth area in terms of revenue, it’s doing the heavy lifting at the moment in operating profit!
In addition to the Mustek deal, Novus has finalised the acquisition of three divisions of Media24: On the Dot, Community Newspapers and Soccer Laduma and Kick Off, for a combined purchase price of R40 million.
Another point worth mentioning is that the Education segment is investing heavily in curriculum development. They expect the updates to negatively affect orders in the second half of the financial year, but obviously they hope that it will have greater benefits in future.
Overall, diluted HEPS more than doubled from 28.77 cents to 59.36 cents – a fine result based on such modest revenue growth!
Remgro flags that rarest of things: double-digit earnings growth at Mediclinic! (JSE: REM)
After taking Mediclinic private, Remgro still keeps the market updated
Mediclinic, now officially held through the Manta Bidco alongside MSC Mediterranean Shipping Company, is a significant part of Remgro’s numbers. Credit where credit is due: I think it’s great that Remgro still releases the Mediclinic numbers in reasonable detail. They technically didn’t need to take this route.
The hospital groups aren’t usually the most exciting growth stories around. Still, this has been a decent time for Mediclinic, with revenue up 6% for the six months to September and adjusted EBITDA up 13%. This means that adjusted EBITDA has increased from 13.0% to 13.8%.
By the time you reach the bottom of the income statement, adjusted earnings are up 25%. Another massive improvement is in cash conversion (literally the conversion of EBITDA into cash from operations), coming in at 102% vs. 63% in the comparable period.
Ironically, given Switzerland’s positioning as a haven for billionaires and remembering the sheer wealth of the families sitting behind this thing, that country remains the headache for Mediclinic. Although losses improved, they still made a loss in Switzerland. Conversely, Southern Africa saw adjusted earnings increase 18% and the Middle East was up 74%.
Nibbles:
Director dealings:
In settlement of a portion of a financing transaction from August 2021 that had a collar structure (a put and call option), an associate of a director of Capitec (JSE: CPI) sold shares worth R95 million. This is a direct result of the share price having done so well and therefore being above the call option strike price. The associate had no choice in this regard to sell the shares.
An associate of an independent director of WeBuyCars (JSE: WBC) loaded up on shares, buying a substantial R27 million worth of shares. That may sound like it could compromise his independence, but the director involved was one of the founders of OUTsurance. I suspect this is small change for him.
A director of The Foschini Group (JSE: TFG) has disposed of shares worth R17.2 million due to a “portfolio rebalancing” – I suspect that the share price being up over 53% this year was a helpful factor in choosing to rebalance.
An associate of a prescribed officer at Discovery (JSE: DSY) sold shares worth R4.9 million.
Vodacom (JSE: VOD) has changed its sponsor (the technical term for its JSE listings requirements advisor) from Nedbank to Investec. A change in sponsor isn’t very common and is sometimes linked to a broader potential advisory relationship. This makes me wonder if Investec has put something juicy on the table for Vodacom to consider, particularly after the recent negative surprise from the Competition Tribunal re: the Maziv fibre deal.
In good news for Lighthouse Properties (JSE: LTE) and Vukile (JSE: VKE), the Spanish congress voted against eliminating the SOCIMI tax regime. Although both companies had talked down any potential negative impact of the vote being supported, they are both happy with the status quo.
You can’t read too much into something like a CET1 ratio at a bank in isolation, but Nedbank’s (JSE: NED) regulatory reporting for the quarter ended September shows the bank in a really strong balance sheet position, with the group highlighting “ongoing strong earnings growth” – so times are still good in banking, it seems.
OUTsurance Group (JSE: OUT) has increased its stake in OUTsurance Holdings from 92.30% to 92.63%. Yes, there are still managers in OUTsurance with shares directly in the operating group rather than the listed group. OUTsurance Group is happy to flick those shareholders up to the top by issuing listed shares in exchange for further shares in OUTsurance Holdings, so you’ll see this happening from time to time.
Brait (JSE: BAT) has disposed of shares in Premier (JSE: PMR) leading to its stake decreasing by 1.23% on a beneficial interest basis and 2.04% on an economic basis. Brait now has 32.34% of the total shares in Premier, with a beneficial interest of 19.4% due to the terms and conditions of a voting rights agreement.
AngloGold Ashanti (JSE: ANG) announced that the scheme of arrangement to acquire Centamin has now become effective. They are now the proud owners of 100% of Centamin.
Libstar (JSE: LBR) announced that lead independent non-executive director JP Landman will be stepping into the Chairman role, replacing Wendy Luhabe who is not standing for re-election at the next AGM, having served in the role since 2018.
Visual International (JSE: VIS) has released a trading statement dealing with the six months to August. The market cap is among the smallest on the JSE, hence it only gets a mention down here. They expect headline losses to worse by 48% to -0.93 cents.
African Dawn Capital (JSE: ADW) needs to issue a circular for a Category 1 disposal that will see EXG Partners invest R5 million in Elite, a wholly-owned subsidiary. It tells you a lot about African Dawn that such a tiny amount triggers a Category 1 compliance requirement. The delays in catching up on financial reporting have created a knock-on effect for the circular. Although the financials have been released, the circular will only be ready for shareholders by 31 January and the JSE has granted an extension in this regard.
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