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Ghost Bites (Ascendis | Barloworld | EOH | Master Drilling | Nampak | Salungano | Spar | Tharisa | Vukile)

The Finance Ghost
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Ghost Bites (Ascendis | Barloworld | EOH | Master Drilling | Nampak | Salungano | Spar | Tharisa | Vukile)

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

Ascendis is making profits again (JSE: ASC)

The market will consider this in weighing up the offer for the shares

The offer on the table for Ascendis shares is 80 cents per share. The market will give that careful thought after the company just announced that for the six months to December 2023, HEPS from continuing operations was between 9.2 cents and 11.2 cents. Remember, that’s an interim number, not a full-year number.

From total operations, HEPS was between 11.4 cents and 14.0 cents.

In both cases, this is a swing into the green from a loss-making position in the comparable period.

Detailed results are due on 28 March.

Barloworld’s margin resilience has proven useful (JSE: BAW)

The pain of a revenue drop has been partially mitigated

Barloworld released a trading update for the five months to February 2024. Group revenue has fallen by 5.5% and EBITDA is down 2.5%. The improvement in EBITDA margin from 11.5% to 11.9% has helped substantially here as revenue fell. Operating profit margin has dipped from 8.9% to 8.7% though.

Equipment Southern Africa saw revenue drop by 4.9%, attributed to a 17.8% drop in machine sales due to lower demand from mining customers. Parts sales were up 13.2%. Operating margin went the wrong way in this business, with operating profit down 7.5% and margin coming in at 7.1% vs. 7.3% in the prior period. EBITDA margin moved slightly higher though, from 10.3% to 10.4%. EBITDA came in at R1 billion. The highlight in the division was 38.1% growth in the profit attributable from the Bartrac joint venture.

The order book is a worry in the local business, down from R5.7 billion to R3 billion.

Equipment Eurasia saw revenue drop by 11.1%, with Barloworld Mongolia up 24% and VT down 30%. Despite this, operating profit from core trading activities grew by 17% as the mix shifted towards after-market sales. Good cost control was also a major contributor here. The firm order book grew massively from $15.9 million in the prior period to $119.8 million. EBITDA in Mongolia was $20.1 million, up a whopping 78.6%. This is an EBITDA margin of 25.9%, which absolutely dwarfs the Southern African business in terms of margin. In VT in Russia, EBITDA was $17 million, which is 19.8% lower than the previous period.

Ingrain, the consumer industry business, suffered a 5.2% reduction in revenue. Exports felt the pressure thanks to Durban harbour issues and competitive pricing of starch. EBITDA was R318 million, down 9.9%. Operating profit fell by 16.9%. To address the concerns in the trajectory of the business, Barloworld is right-sizing the business. That can only mean a reduction in jobs.

On the whole, it remains quite shocking to me to see how poor the South African performance is relative to places like Mongolia. This is a clear indication of the broader decay in South African conditions.

EOH reports on a very poor interim period (JSE: EOH)

Operating profit has all but disappeared

EOH’s revenue for the six months ended January 2024 was R3.1 billion, which is below the R3.2 billion achieved in the comparable period. That difference has dropped straight to the bottom line, with operating profit plummeting from R142 million to R9 million.

Adjusted EBITDA is R97 million vs. R171 million in the prior period. Whichever way you cut this, it hurts.

The headline loss per share came in at 11 cents per share. Funnily enough, that’s better than the headline loss per share of 17 cents per share in the comparable period. The thing you need to remember is that the comparable period included tons of debt, whereas this period is theoretically the new and improved version of EOH. Interest costs dropped from R102 million to R68 million but this still wasn’t enough to help the group move into profitability, all because of the challenges in the core business.

EOH makes it clear to the market that the issues experienced towards the end of the prior financial year continued into the first half of this interim period. The problem is that the business still relies to a large extent on public sector and other lumpy contracts, so I can’t really see it getting better despite EOH’s hopes for the contrary.

Master Drilling: record revenue and a helpful ZAR move (JSE: MDI)

The dividend is up 10.5%

Master Drilling reports its numbers in both USD and ZAR. As you might imagine, the percentage moves can be very different.

Revenue for the year ended December 2023 was up 7.2% in USD to a record high of $242.8 million. Despite this, HEPS in USD only increased by 2.1% to 14.5 cents. The story in ZAR looks different, with HEPS up by 15.1% to 267.7 cents.

The dividend in ZAR increased by 10.5% to 52.5 cents. That’s a very modest payout ratio, especially in the context of cash from operations being 42% higher. The company is investing in new technologies to remain relevant, so it does make sense that a high proportion of earnings needs to be retained.

Debt decreased slightly from $46.1 million to $44.1 million. Including cash, the gearing ratio was flat at 7.8%.

The group sounds confident about the pipeline and committed order book. They are currently working towards a 75% fleet utilisation rate.

Nampak chips away at the debt (JSE: NPK)

There’s a long way to go, but this disposal sure does help

Nampak needs to dispose sufficient assets to raise around R2.6 billion. This will do wonders for the balance sheet and will result in a far more focused group. As a step on that journey, Nampak has agreed to sell Nampak Liquid Cartons, Nampak Zambia and Nampak Malawi for R450 million.

The buyer is a consortium of Corvest (a private equity arm of FirstRand), along with Dlondlobala Capital and two key management members as well.

Nampak Liquid Cartons operates in South Africa, selling paper liquid packaging products. Nampak Zambia focuses on conical cartons (with supplementary income from bags, crates, bottles and more) and Nampak Malawi helps Nampak Zambia and Nampak Zimbabwe sell various products in the Malawian market.

The net asset value of the disposal assets comes to R399 million. Profit after tax is R104.7 million for the year ended September 2023. A Price/Earnings multiple of 4.3x tells you where the market is on risky African assets.

This is a Category 1 transaction as it is more than 30% of Nampak’s market cap. A detailed circular will thus be released.

In a separate announcement, Nampak noted a cyber attack on the group’s IT systems. There has been no impact on manufacturing facilities, so it’s not obvious to me why they released a SENS announcement on this topic.

Salungano flags substantial losses (JSE: SLG)

At least EBITDA is positive

Salungano Group has released a trading statement for the year ended March 2023. The headline loss per share is between 50.65 cents and 57.65 cents, which is a lot when the share price is only 50 cents! HEPS in the comparable period was 6.13 cents.

The group achieved positive cash from operations at least, with EBITDA of between R80 million and R120 million.

Spar is treading water and needs to do better (JSE: SPP)

I think they can win from some of the Pick n Pay pain though, so I’ve taken a modest position

Spar is very much the “other guy” in grocery retail at the moment. Shoprite is the superstar, Pick n Pay has been left for dead in the mud and Woolworths is standing on the second step on the podium wondering how Shoprite made it to the top.

Spar? Well, it’s an odd one. When they aren’t scoring own-goals in South Africa with the ERP system, they are fighting difficult conditions in the European markets. Despite this, the group isn’t in anywhere near the trouble of the likes of Pick n Pay. With the share price down 38% in the past year and trading very close to 52-week lows, there’s some resilience in this performance that caught my eye. I’ve taken a small speculative position accordingly.

It’s going to be a while until things come right, assuming they do. Group turnover increased by 8.8% for the 24 weeks ended 15 March. Of course, you have to dig deeper than that.

SPAR Southern Africa grew wholesale sales by 5.7%, with grocery up 5.0% and TOPS up 12.8%. Volumes were under pressure, with core grocery and liquor turnover growth of 6% vs. price inflation of 7.2%. Build it could only manage 1.1% growth, but at least that’s heading in the right direction again. The pharmaceutical business grew by a strong 17.7%.

Looking abroad, BWG in Ireland and South West England is a jewel in a highly uninspiring crown. Turnover was up 6.6% in EUR terms and 16.9% in ZAR. SPAR Switzerland saw turnover fall 4.7% in CHF terms and increase 8.8% in ZAR. They have a real issue in that market with locals buying groceries across the border, as Switzerland is such an expensive place to live. SPAR Poland remains a mess, with turnover down 4.2% in PLN and up 13.2% in ZAR.

In other words, rand weakness made all the difference here, without which the turnover result would’ve been poor. Like I said, there’s a lot of fixing up to do.

SPAR is trying to sell the business in Poland and hopefully that will happen sooner rather than later. With group net debt of R11.5 billion, management believes they can achieve an optimum debt structure without tapping shareholders for funds. If that doesn’t work out, I’ll regret my speculative position here.

Another thing they desperately need to get right is the SAP implementation in KZN. It is still not running at the correct efficiency levels.

There are some encouraging signs in recent trading performance, particularly in February (even after taking the leap year into account). EBIT margin is under pressure though thanks to the irritation of the SAP system.

There’s a bumpy ride ahead. I’m just hope that SPAR can get its house in order quickly enough to take advantage of the mess at Pick n Pay. If not, then Shoprite will just keep pulling further and further ahead.

Tharisa’s share repurchase plan excites the market (JSE: THA)

When used properly, share repurchases are great

The concept of a share repurchase is quite simple, actually. When shares are trading at a valuation that the company believes is too cheap, a share repurchases is preferred to a dividend as it helps the company mop up shares at a low price. This is earnings accretive for the shareholders who choose not to sell their shares. Over time, this becomes a very important component of returns.

Tharisa is commencing with a share repurchase programme of up to $5 million, taking advantage of the pressure on the share price that has been felt across the PGM market.

The share repurchase programme can technically run until February 2025, or until the allocated amount has been used up.

The share price closed 11.5% higher in response, ironically making the share buyback slightly less lucrative for shareholders!

Overall, this is solid capital allocation discipline and that’s exactly what investors like to see, especially in mining groups. The sector is notorious for questionable capital discipline.

Vukile gives an encouraging pre-close update (JSE: VKE)

The recent R1 billion capital raise shows that the market supports this growth story

Vukile’s pre-close update is incredibly detailed. You can find the full document here.

In the South African portfolio, the like-for-like net operating income growth in 5.4% for the period ended February 2024. Retail vacancies fell slightly, with rural and value centres effectively fully let. That part of the market is incredibly strong at the moment. Commuter and township vacancies increased slightly, so it’s still difficult to get the positioning exactly right in the lower-income market. Reversions moved higher to +2.6% and trading densities are also 2.6% higher, so that’s encouraging. KZN is the exception, with trading density down 3.8%.

This chart gives you a really good idea of just how strong the pharmacy / health and beauty combination is:

Pick n Pay exposure in the Vukile portfolio is 6.2% of total rent. 4.4% is in the lower LSM brands, which is actually a good thing in this case.

In the Spanish portfolio, footfall achieved record levels and tenant sales are growing strongly, reflecting overall positive momentum in that economy. The average rent increase came in at 9.92% from 1 April 2023 to 29 February 2024. The group also sounds happy with the investment in Lar España by Castellana.

In terms of capital allocation, Vukile wants to increase the stake slightly in Lar España. They avoid bidding wars on Spanish assets and are happy to be outbid. In contrast, they are selling down the stake in Fairvest and allocating that capital into Lar España shares and the roll out of solar.

The R1 billion from the equity capital raise is currently in a money market account earning 9.25% interest. They plan to invest all the money by September 2024, with 35% gearing on new assets.

Guidance has been upgraded to reflect growth in FFO per share above 6% and growth in the dividend of over 10%. Vukile is doing really well at the moment.

Little Bites:

  • Director dealings:
    • Three Anglo American (JSE: AGL) non-executive directors took advantage of the “shares in lieu of fees” scheme. That’s a purchase in my books, with a total value of £31k.
  • Keep an eye on enX (JSE: ENX) and the planned shareholder meeting for the proposed sale of Eqstra Investment Holdings to Nedbank. The meeting is scheduled for 3rd April and a company called Inhlanhla Ventures (which holds 1.12% of enX shares in issue) has made an urgent application to the High Court to interdict the company from proposing the resolution. This relates to a transaction in 2020 in which Inhlanhla defaulted on obligations and lost shares in a company called eXtract Group. enX has responded to the application and received legal advice that the Inhlanhla action doesn’t have reasonable prospects of success. For now at least, the board plans to go ahead with the meeting. If a judge grants an interdict, then that’s a massive spanner in the works for this deal.
  • Copper 360 (JSE: CPR) has released the circular related to the share subscription facility with the GEM Yield funds that are willing to invest up to R650 million in ordinary shares. This also comes with substantial share warrants. If you’re a shareholder here, you need to have a very careful think about what this means for the group’s prospects and your current and future dilution as a shareholder. I must point out that if you’re shocked by dilution when investing in a junior mining house, you didn’t do your research on how this sector works.
  • Deutsche Konsum (JSE: DKR) has announced that the company intends to withdraw its secondary listing on the JSE. I am really not surprised, as there’s absolutely no point in a listing that has zero liquidity.
  • Textainer (JSE: TEX) will be delisted on Wednesday 27 March 2024 due to the implementation of the Stonepeak deal.
  • Randgold & Exploration Company (JSE: RNG) released a trading statement for the year ended December 2023. The headline loss per share is between 30.84 cents and 33.16 cents. This is a deterioration of between 33.47% and 43.47% vs. the prior year.

Ghost Bites (ADvTECH | Ascendis | CA Sales | Capital Appreciation | Clientele | Fairvest | Gemfields | Merafe | MC Mining | MTN | Sasfin | Wesizwe Platinum)

The Finance Ghost
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Ghost Bites (ADvTECH | Ascendis | CA Sales | Capital Appreciation | Clientele | Fairvest | Gemfields | Merafe | MC Mining | MTN | Sasfin | Wesizwe Platinum)

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

ADvTECH achieved a 45% increase in the dividend (JSE: ADH)

The year ended December 2023 was cause for celebration

Revenue for the year ended December 2023 increased by 13% to R7.86 billion. The story gets even better from there for ADvTECH, with operating profit up 18% to R1.577 billion. HEPS jumped by 19% to 174.2 cents per share, putting the icing on the cake in terms of a strong revenue increase translating into a great HEPS outcome.

The dividend per share is 45% higher for the year, coming in at 87 cents per share. That’s a modest payout ratio, indicating that the group is retaining significant funds for growth.

The Schools Rest of Africa division was the star in terms of growth, with operating profit up 43% to R114 million. Schools South Africa achieved 18% operating profit growth to R570 million. The Tertiary business was up 16% to R787 million and even Resourcing weighed in, with operating profit growth of 20% to R106 million.

Overall, that’s a really strong outcome.

Ascendis makes changes to the independent board and circular (JSE: ASC)

This follows complaints received by the TRP and associated compliance notices

Ascendis has received more than its fair share of attention on social media in the past few months, with the offer to shareholders from the consortium led by Carl Neethling raising all kinds of interesting questions. There’s also been plenty of noise online, which has led to legal action by an Ascendis director against one of the protagonists. It’s been wild out there and I don’t think the story is anywhere near being over!

Without wading into the hornet’s nest of all the fighting online, the important point is that the TRP has investigated the matter and issued compliance notices where appropriate. This has led to a few changes from Ascendis, such as the disclosure around concert parties and who is included in that definition.

Another important change is that Amaresh Chetty has moved off the independent board on a “voluntary basis and in agreement with the TRP”. This is based on a potential conflict of interest.

A supplementary circular has thus been issued and the rescheduled general meeting is in the diaries for Tuesday, 23 April. If you would like to read the entire thing, you’ll find it here.

CA Sales acquires 49% of Roots Sales (JSE: CAA)

The bolt-on acquisition strategy continues

CA&S, or CA Sales Holdings as its full name, has been one of the best recent success stories on the JSE. The share price is up 61% over the past year, which is massive outperformance vs. the rest of the market.

This has been thanks to a solid and dependable strategy with no fireworks or weirdness. Investors love simplicity. They absolutely adore simplicity that leads to profits.

A bolt-on acquisition strategy is the simplest way to grow inorganically. If you can imagine a piece of Lego in your hands, a bolt-on strategy is about taking some blocks and adding them to what you already have. This is totally different to a high risk acquisition strategy that looks for entirely new opportunities, or a new Lego set to build instead of improving the existing one.

CA Sales has acquired 49% of Roots Sales, a business with a ten-year track record in helping consumer brands reach the market in South Africa. Roots services over 8,000 outlets across Southern Africa. This is a perfect fit with the rest of CA Sales’ business and makes a lot of sense. It’s also good news that CA Sales has the option to increase its shareholding in Roots (thereby taking control), exercisable at a point in future.

Appreciation for the Payments division at Capital Appreciation (JSE: CTA)

This side of the business has carried the team in the latest period

Capital Appreciation released a pre-close update for the year ending 31 March 2024. It tells a tale of two divisions, with the Payments side doing well and the Software side struggling in a period of weak demand. Overall, financial performance improved in the second half of the financial year.

In Payments, terminal sales recovered in the second half of the year and the leased terminal estate doubled from the prior year. This bodes well for revenue and profits in years to come. Annuity revenue is now 56% of total revenue in this division, up from 50% a year ago. To assist further, expenses were tightly controlled and actually came down year-on-year, doing excellent things for improvement in margins.

The Software division is singing a different tune, with delayed contracts that impacted profitability after the business was staffed up. It’s incredibly hard to manage a business like this, as the staff need to be there to service the clients but it’s also quite easy for clients to delay projects. Although revenue growth was achieved for the year, the narrative in the announcement is one of challenges in costs. Notably, the recently acquired Dariel Group has been integrated into this division as well.

At GovChat, the company and other GovChat shareholders will share the costs of litigation against Meta, with GovChat given the right to intervene as a direct party in the Competition Commission’s prosecution of Meta. Further funding of GovChat has been limited and losses will be materially lower for this year.

Importantly, the group still has no debt on the balance sheet (despite the Dariel acquisition).

It’s hard to know where to look at Clientele (JSE: CLI)

The interim results look poor, but have been impacted heavily by IFRS 17

Clientele has released results for the six months to December 2023. HEPS fell by 35%, which doesn’t make for a happy starting point. This is based on restated comparatives for 2022 that take IFRS 17 into account.

The annualised return on average shareholders’ interest has dropped to 9%. That’s also not a good story. The introduction of IFRS 17 led to a significant increase in net asset value and a drop in current period profits. The combination is obviously a disaster for return on capital ratios.

It’s quite difficult to know how to interpret the results. Insurance income is significantly affected by yield curves over the period and how they change shape, which can lead to some volatile outcomes in a time of macroeconomic flux.

Group Embedded Value is calculated on the old IFRS 4 basis and increased from R5.9 billion at June 2023 to R6.0 billion at 31 December 2023 despite the payment of a R420.7 million annual dividend. Recurring EV earnings fell 1% vs. the comparative period.

Without a doubt, these earnings were impacted by a large number of factors that aren’t reflective of the core business. It looks as though earnings were under pressure, but the core business probably isn’t 35% worse than the prior year (as HEPS would suggest). The share price had a horrible day regardless, down 12.7%.

Fairvest affirms distribution guidance for the year for the B shares (JSE: FTA | JSE: FTB)

The balance sheet looks good as well

Property fund Fairvest released a pre-close update dealing with the six months to March 2024. The fund is split across retail (69.4%), office (18.8%) and industrial (11.8%) properties, with those splits based on revenue.

Between September 2023 and the end of February 2024, group vacancy moved higher from 4.5% to 5.3%. That’s not great obviously, but it is good news that positive rental reversions of 2.5% were achieved overall. The loan-to-value ratio is expected to be below 34% for the interim period. Perhaps most importantly, the guidance for the full year B share distribution of between 41.5 cents and 42.5 cents has been reaffirmed.

Interestingly, the presentation includes an entire slide dedicated to the Pick n Pay and Boxer exposure. Pick n Pay contributed 1.8% of group revenue and Boxer was 3.9%. Pick n Pay Liquor and Clothing came in at 0.3%. Overall, Fairvest sees this as a low risk to the business.

I must highlight that the office portfolio seems to have suffered the worst of the vacancy trend, up from 9.7% at September 2023 to 12.8% at the end of February 2024. Both the industrial and retail portfolios also saw a deterioration, but to a far lesser extent.

Gemfields concludes another emerald auction (JSE: GML)

These metrics don’t look so great, but the company has tried to explain why

In the comments related to this emerald auction, the Gemfields executive noted that “the commercial-quality emerald market remains in good shape and prices are broadly in line with the September 2023 commercial-quality auction.” Now, that may well be true, but the metrics for the auction tell a different story. The devil seems to be in the detail of the lower-quality emeralds included in this auction, which would normally be sold via a direct sales channel. There were also unsold lots that weren’t typical auction grades. This has skewed the overall auction result.

Of the last five auctions, this auction achieved the worst result in terms of percentage of lots sold by weight. With sales of $17.1 million, it also achieved the lowest total sales result. The price of $4.45 per carat was way off the other auctions, with the lowest of the other auctions at $7.13 per carat.

The market is a tad nervous of Gemfields after the last results and these metrics wouldn’t have helped, despite the company’s efforts to explain them. The market will watch the results of the next few auctions closely.

Separately, the company released its annual report and announced a dividend of USD 0.857 cents per ordinary share. This is miles off the USD 4.125 cents in 2022.

Merafe announces the second quarter ferrochrome price (JSE: MRF)

This is obviously a very important input into expected profitability

For Merafe, the ferrochrome price is the lifeblood of the business. Each quarter, the company announces the benchmark price for the upcoming quarter. This is just how the ferrochrome market works (vs. e.g. a spot gold price).

For the second quarter of 2024, the European benchmark price has been settled at 152 US cents per pound, which is a 5.6% increase vs. the first quarter.

The announcement doesn’t give the year-on-year move, so I went and dug out the equivalent SENS announcement from 2023. For the comparable second quarter, the price was 172 US cents per pound. Although the rand plays a role here, the USD-based price is 11.6% down year-on-year.

MC Mining starts using stronger wording (JSE: MCZ)

Goldway’s efforts to cast doubt on the independent expert valuation have struck a nerve

At one point, I thought we had heard the last of this fight between Goldway as the bidding party and the independent board of MC Mining as the target. Alas, there’s more.

MC Mining has turned up the overall tone of its announcements, particularly in response to Goldway refuting the approach taken by the independent expert in the valuation. The announcement goes into great detail, defending the approach taken and reminding shareholders that the independent board’s recommendation is to not accept the offer.

Either way, shareholders have the opportunity to accept the cash from Goldway (and therefore ignore the independent expert and the board) or trust what the board is saying here. If Goldway doesn’t get enough acceptances though, the entire offer collapses anyway and even those shareholders who were willing to exit at this price won’t be able to do so.

MTN maintains the final dividend despite HEPS collapsing (JSE: MTN)

The payout ratio is now more than 100%

MTN has released its financial statements for the year ended December 2023, giving full details on a year that saw HEPS drop to 315 cents per share (down 72.3%) with the dividend maintained at 330 cents per share. That’s a very unusual outcome, explained by non-operational impacts being responsible for 888 cents per share of the pain in HEPS.

Although there are pockets of strong growth (like data traffic and fintech transaction volumes), group EBITDA was only 9.8% higher year-on-year on a constant currency basis. As reported, it was down 0.5%. On a constant currency basis, EBITDA margin fell by 120 basis points to 41.5%.

To help you understand where everything went wrong, I’ve highlighted the finance costs and especially the net foreign exchange losses in this income statement. Just look at how much higher they are and what that did to group profit:

Those foreign exchange losses relate to MTN Nigeria and they are causing a great deal of pain for shareholders. Although the dividend is unaffected at this point, the pressure can’t continue into perpetuity.

Sasfin releases the circular for the disposals to African Bank (JSE: SFN)

This deal was first announced in October 2023

This circular has been a long time coming. Sasfin is looking to dispose of the Capital Equipment Finance (CEF) and Commercial Property Finance (CPF) businesses to African Bank. This is a Category 1 deal for Sasfin, hence a circular is needed.

This has now been released and is available here for those interested in all the details.

The total deal value is around R3.23 billion. This is based on the loan book values for the two businesses, plus goodwill of R100 million for CEF and an “agterskot” of at least R15.3 million for the CPF business. Sasfin has gotten a decent price here and African Bank is willing to pay it based on the strategic benefits of scale that these acquisitions bring to that group.

Wesizwe Platinum is still loss-making (JSE: WEZ)

The direction of travel has bucked the trend, though

Wesizwe Platinum has released a trading statement for the year ended December 2023. The bad news is that the company is still loss-making. The good news is that the losses have decreased, unlike most PGM groups that had a worse year in 2023 than 2022.

The headline loss per share has improved from -8.24 cents to between -0.95 cents and -1.77 cents.

Little Bites:

  • Director dealings:
    • The CEO of Fortress Real Estate (JSE: FFB) bought shares worth nearly R1.9 million.
    • An executive director of Argent (JSE: ART) has sold shares worth R258k.
  • Cash company Trencor (JSE: TRE) has released results for the year ended December 2023. The group is essentially sitting on a pile of cash that will be distributed to shareholders once the group is able to do so. The total net asset value per share increased from R7.40 to R8.13 over 12 months. The share price is R7.00.
  • There’s another leadership change at Bytes Technology (JSE: BYI), with non-executive director Mike Phillips stepping down with immediate effect. He was Audit Committee Chair. The announcement isn’t explicit on whether this relates to the ridiculous lack of governance around the ex-CEO’s share trades, or something else.
  • Astoria (JSE: ARA) released the “information note” for the deal to acquire more shares in Leatt, which would take Astoria’s stake in the company to 8.84%. This is a Stock Exchange of Mauritius requirement that simply gives more information about Astoria, as the company is proposing the issue of new shares to settle the acquisition of Leatt shares. For those interested, it’s available here.
  • Adcorp’s (JSE: ADR) odd-lot offer has closed. The company repurchased a total of 73,701 shares. This is only 0.07% of shares in issue, yet it takes 6,955 holders off the shareholder register for a total investment of R296k.
  • Hammerson (JSE: HMN) has confirmed that its final dividend for 2023 will be translated into rands at a rate that results in a gross dividend of 18.66017 cents. There is a dividend reinvestment plan available for those who prefer to obtain more shares rather than cash.
  • There is yet another delay in the Conduit Capital (JSE: CND) disposal of CRIH and CLL to TMM Holdings. Approval from the Prudential Authority remains outstanding, with the parties agreeing to extend the fulfilment date to 30 April 2024. This has been going on for a long time now.

Lessons in wealth management from a cursed family

Dominique Olivier
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Lessons in wealth management from a cursed family

The infamous “shirtsleeves curse” is one that has occupied the mind of many a wealthy patriarch on a sleepless night. Affecting 90% of the wealthy, even America’s richest family couldn’t escape its clutches. Could the secret to maintaining family wealth be found in the unfortunate tale of the Vanderbilts?

“From shirtsleeves to shirtsleeves” is an adage that usually pops up when the topic of generational wealth is under discussion. The idea behind this saying is that the first generation of wealth builders in a family will start their journey in shirtsleeves (i.e. not having enough money to afford a coat). Through the hard work of the first generation, the second generation will grow up under better circumstances. Their children, the third generation, will be born into wealth and will eventually squander it, landing themselves and their descendants back in shirtsleeves.

It sounds like a cruel joke or perhaps a myth cooked up by wealth managers, yet the statistics support this theory. 70% of wealthy families are likely to lose their wealth by the second generation. By the third generation, that number can jump to 90%.

Case study: the gilded Vanderbilts

Before he became the richest man in America, Cornelius “Commodore” Vanderbilt was a school dropout hustling on his father’s ferry in New York Harbour. At the age of 16, he borrowed $100 from his mother in order to purchase a two-masted sailing vessel. From there he set sail as a captain on a Staten Island passenger boat. Riding the waves of success, he steamed ahead (literally) into the steamboat business before laying the tracks for his legendary railroad empire, New York Central.

Stretching his reach across the nation, Vanderbilt’s iron veins connected every corner of the United States, monopolising rail services in and out of the Big Apple. By the time of his death in 1877, Vanderbilt’s riches had skyrocketed to $105 million, outshining even the coffers of the US Treasury.

While $105 million in 1877 was enough to make Vanderbilt the richest man in America, the equivalent $3 billion in today’s money (grown at inflation) would make him a relatively small fish in a very rich pond. For reference, Elon Musk, who currently holds the title of America’s wealthiest man, is worth $251 billion.

If Vanderbilt’s riches had been invested wisely, they would surely have grown by more than inflation in the 147 years since their patriarch’s death and there is a good chance that the family would have held onto their position as one of America’s wealthiest. Unfortunately, Cornelius Vanderbilt made the cardinal mistake that often leads to the downfall of the rich: he left his money to his children.

“Any fool can make a fortune; it takes a man of brains to hold onto it,” Cornelius is said to have told his son William Henry “Billy” Vanderbilt, according to a family biographer. The same Billy would go on to inherit the family’s 87% stake in New York Central, with comparatively tiny allowances left to his 12 siblings. His father’s words of wisdom clearly struck a nerve in Billy, who endeavoured throughout his lifetime to protect and grow his father’s fortune. By the time of his death in 1885, Billy had almost doubled the Vanderbilt fortune to $200 million.

Despite the fact that his father had encouraged him to leave his wealth to one heir, Billy’s stake in the family business was divided between his two sons, Cornelius Vanderbilt II and William Kissam Vanderbilt. Combined with the dawning of the Gilded Age in New York, this division of the family’s wealth was the beginning of their downfall.

Divide and don’t conquer

Third-generation heir Cornelius Vanderbilt II managed the railroad business until his passing in 1899 but did little to innovate or otherwise grow it. His brother, William Kissam Vanderbilt, assumed control for a few years but soon retired to focus on his passions for yachts and thoroughbred horses. According to the Vanderbilt biography, William is quoted as saying “Inherited wealth is a real handicap to happiness. It has left me with nothing to hope for, with nothing to define, to seek or strive for.” Talk about the proverbial golden handcuffs.

New York’s Gilded Age ushered in extravagant spending in the Vanderbilt family and relentless pursuits to maintain appearances. Among the family’s prized possessions were an extensive art collection featuring old masters and a string of opulent residences, including The Breakers in Newport, Rhode Island, and ten mansions gracing Fifth Avenue in Manhattan.

It was around this time that the Vanderbilts also embraced philanthropy, with the third generation donating $1 million for tenement housing in New York City. Substantial contributions flowed to institutions like Columbia University, the YMCA, the Vanderbilt Clinic, and Vanderbilt University. This was the point where the family’s wealth accumulation came to a standstill. William’s philanthropic endeavours and lavish lifestyle eventually balanced his estate, reportedly matching the inheritance he received in 1885 upon his father’s demise.

By the fourth generation, things had truly started to spiral. Cornelius II’s son, Reginald “Reggie” Claypoole Vanderbilt, was an avid gambler and playboy who drank and gambled his inheritance away. His brother, Cornelius “Neily” Vanderbilt III, spent vast sums on maintaining his high society appearance. Beyond the open wallets, questionable business decisions took bigger bites out of the family fortune.

The transport business had peaked in the late 1920s, but freight soon declined and by the end of World War II, trucks, barges, aeroplanes and buses had cut into its industry. Instead of adapting to these changes, the family chose to unlock cash by selling shares in New York Central to the Chesapeake and Ohio Railway, allowing their competitor to become a major shareholder.

At one point, New York Central stood as the second-largest railroad in the United States, boasting an extensive network of 17,000 km of track across 11 states and two Canadian provinces. By 1970, the company faced financial turmoil, culminating in bankruptcy. Subsequently, federal intervention led to the transition of passenger services to Amtrak in 1971.

While a handful of Vanderbilts have managed to make names for themselves over the years (fifth generation Gloria Vanderbilt became a famous fashion designer, while her son, sixth generation Anderson Cooper, is a CNN news anchor), the business that once made them one of the most prominent families in America has disappeared without a trace – as has the wealth it brought them.

Is there a cure for this curse?

A recent survey by US Trust targeted high-net-worth individuals possessing over $3 million in investable assets. Its aim was to explore their strategies for preparing the next generation to manage substantial wealth. 78% expressed concerns about the financial readiness of their heirs to handle inheritance. Even more striking, 64% confessed to divulging minimal to no information about their wealth to their children.

The reason behind wanting to hide your wealth from your children seems obvious: parents are probably worried that children who know that they have a juicy inheritance coming to them will grow up to be lazy and entitled. But then what happens when parents pass away and children receive a vast inheritance that they were never adequately prepared for?

Conversely, talking to children about money from an early age – including how to grow it, donate it and spend it wisely – puts them in a far better position to be able to handle a large inheritance when the time comes.

The reason why a family fortune might survive in the second generation is often because that generation is involved in the family business from a young age. They therefore work side-by-side with the founders, witnessing their passion and drive, as well as familiarising themselves with the intricate details of the business and its industry. This explains why Billy Vanderbilt was able to double the family fortune after his father’s death.

Perhaps the greatest gift that you could leave your children – worth far more than their actual inheritance – is a roadmap and a plan to preserve it. Educate them on the wonders of compound interest and guide them in understanding when their spending will start to affect the overall capital. Most importantly, make sure that your children are prepared to do the same for their own heirs somewhere down the line.

And as a final comment, you may also want to enjoy some of the money yourself. The stats tell us that even if you don’t spend it, your kids’ kids probably will.

About the author:

Dominique Olivier is a fine arts graduate who recently learnt what HEPS means. Although she’s really enjoying learning about the markets, she still doesn’t regret studying art instead.

She brings her love of storytelling and trivia to Ghost Mail, with The Finance Ghost adding a sprinkling of investment knowledge to her work.

Dominique is a freelance writer at Wordy Girl Writes and can be reached on LinkedIn here.

Ghost Wrap #65 (Transaction Capital | Sun International | Thungela | OUTsurance)

The Finance Ghost
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Ghost Wrap #65 (Transaction Capital | Sun International | Thungela | OUTsurance)

The Ghost Wrap podcast is proudly brought to you by Mazars, a leading international audit, tax and advisory firm with a national footprint within South Africa. Visit the Mazars website for more information.

In this episode of Ghost Wrap, I covered these important stories on the local market:

  • Transaction Capital didn’t get quite as much as it hoped for the WeBuyCars shares, but still raised over R900 million at what seems like a good price. The group has also announced the sale of Nutun Australia.
  • Sun International had some bright spots in 2023 and could really do with reduced load shedding as it gears up for the Peermont acquisition.
  • Thungela is as cyclical as can be and has expanded into the Australian market – yet the capex split still tells a story of a predominantly South African group.
  • OUTsurance reported a mixed bag of numbers and decent dividend growth overall, with significant attention on whether the push into Ireland will work. 

Ghost Bites (Bell | Discovery | Gemfields | Grand Parade Investments | Investec | MC Mining | Renergen | Schroder Real Estate | Sibanye | South32 | South Ocean | Telkom | Transaction Capital | Workforce)

The Finance Ghost
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Ghost Bites (Bell | Discovery | Gemfields | Grand Parade Investments | Investec | MC Mining | Renergen | Schroder Real Estate | Sibanye | South32 | South Ocean | Telkom | Transaction Capital | Workforce)

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

Bell goes from strength to strength (JSE: BEL)

A further trading statement tells an even better story

Bell Equipment’s share price is up more than 53% in the past six months. It’s up 155% over five years. You can make money on the local market, provided you know where to look (and what to pay).

In the initial trading statement released in November 2023, Bell indicated that HEPS would be up at least 59% for the year ended December 2023. In a further trading statement, we now know that the increase is actually between 65% and 73%, thanks to stronger market conditions than anticipated at the end of the year.

This is an incredibly strong result.

Normalised earnings grew double digits at Discovery (JSE: DSY)

The offshore operations were a strong contributor

If you focus on headline earnings as reported, then you’ll find that Discovery has no growth whatsoever to report for the six months to December 2023. If you’re willing to use normalised headline earnings, you’ll find growth of 11% instead. The difference? A prior period fair value gain from a UK interest rate derivative.

Fancy financial footwork aside, the good news is that new business annualised premium income grew by a juicy 28%. Embedded value was up 12%, which is a useful metric for those trying to value Discovery. Annualised return on embedded value fell from 14.4% to 12.1% though.

Basic embedded value per share is R156.29 and the share price is R127.21, so Discovery trades at a discount to embedded value that reflects the inadequate return on embedded value vs. what the market is looking for.

Cash is a language we all understand, with an interim dividend of 65 cents per share. There was no interim dividend in the comparable period, so that’s a significant improvement.

If you’re wondering where the growth came from, then you’ll be interested to know that South Africa generated normalised profit growth of 9% vs. the UK at 13% (assisted by the weaker rand). Vitality Global was also helped along by the weaker rand and the low base effect, up 71%.

Gemfields’ profits took a serious knock in 2023 (JSE: GML)

Costs ramped up and shareholders haven’t seen the benefits yet

Gemfields achieved its second highest annual revenues in 2023. There were record prices achieved for gemstones sold at auction. Against that backdrop, you would expect a strong result.

Instead, you have a weaker production result vs. 2022 (which even led to the withdrawal of an auction from the schedule) and the negative impact on profits of a period of heightened investment in the operations. For example, a second processing plant is being built at the ruby operations.

It’s also important to understand just how big the gap is to 2022’s revenue result. Kagem (the emeralds) achieved revenue of $89.9 million vs. $148.6 million the prior year. Montepuez (the rubies) achieved $151.4 million vs. $166.7 million the prior year, which is a far less severe drop than in emeralds. Fabergé reported revenue of $15.7 million vs. $17.6 million the year before as the luxury market slowed down.

So although 2023 was still a strong revenue result vs. historical averages, it was a substantial come-down from 2022. This is why adjusted HEPS (which excludes Sedibelo’s fair value loss) was 26.8 cents vs. 85.5 cents in the prior year.

If you include the massive write-down of $28 million to PGM investment Sedibelo Resources, then there would be a headline loss per share of 16 cents.

The Gemfields share price is down 21% over the past year.

Grand Parade Investments: read carefully (JSE: GPL)

The increase in profit is from a very unusual source

Grand Parade Investments has been through quite the purge in recent years, changing its portfolio significantly. Although it describes itself as an investment holding company, they still focus on HEPS as the primary measure. It’s more appropriate I think to switch to NAV per share.

Headline earnings from continuing operations increased by 20% but you have to read far more deeply than that.

Firstly, the Gaming & Leisure portfolio (the core investments) saw headline earnings fall by 4% for the six months to December 2023. Then, if you don’t read carefully, it looks like corporate costs actually dropped from R12 million to R8 million. The important nuance is that there was a write-back of prescribed dividends of R11 million, which comes through as revenue in the central costs segment.

In other words, corporate costs actually moved higher.

If it wasn’t for the write-back of dividends, headline earnings would’ve dipped slightly. The gaming sector (especially slot machines) didn’t have a great time in 2023 with load shedding and other challenges, so I would expect to see this.

Solid growth at Investec (JSE: INL)

Return on equity is above the mid-point of the group’s target range

Investec reports in GBP, so you have to remember that growth percentages are in hard currency. This is different to growth in ZAR, as there seem to be only three certainties in life: death, taxes and the depreciation of our currency.

So, with HEPS growth for the year ending 31 March expected to be between 4.8% and 10.6% in GBP, that’s a solid outcome.

There were a number of important corporate activities this year, including the combination of Investec Wealth & Investment with the Rathbones Group, as well as the disposal of the property management companies to Investec Property Fund (now called Burstone).

The net interest income side of the business benefitted from the combination of larger balance sheets and higher rates, something I’ve written about many times here. The non-interest revenue line was positively impacted by client activity levels and higher trading income, as well as the first-time consolidation of Capitalmind in Continental Europe.

The credit loss ratio is expected to be at the mid-point of the through-the-cycle range of 25 basis points to 35 basis points. The UK ratio is above the upper end of the target range and the South African ratio is below the target range.

For those following Investec closely, it’s important to note that Investec’s exit from The Bud Group Holdings will be assisted greatly by the disposal of Assupol to Sanlam by that group.

Return on equity for the year is expected to be above the mid-point of the group’s target range of 12% to 16%. Again, remember that this is in GBP and therefore not directly comparable to local banks reporting in ZAR. You need a higher return in ZAR to reward you for local country risk.

MC Mining responds to Goldway (JSE: MCZ)

With the independent expert report in circulation, the board has the wind in its sails

For those who have been following the MC Mining saga, it’s important to know that the company has now responded to Goldway’s recent statements. Aside from responding to the allegations of lateness around the independent expert report, the board has also systematically responded to Goldway’s various claims about the assets.

The language is much less “shouty” and antagonistic than what Goldway has been putting out there.

Goldway’s offer price is well below the range suggested by the independent expert. This remains the basis for the board recommending that shareholders do not accept the offer.

In a separate announcement, Goldway has reminded the market that acceptances need to be received from holders of at least 50.1% of shares that it does not already own in order for the offer to be declared unconditional. This needs to be achieved by 5 April 202

Renergen attracts further funding (JSE: REN)

An Italian investment group has subscribed for more convertible debentures

Renergen announced that Airsol, part of the SOL group that was founded in Italy in 1927, has subscribed for a further $4 million worth of convertible debentures. This takes the total investment by SOL to $7 million.

This tranche was subject to Renergen implementing the deal with Mahlako Gas Energy, with that deal having been completed now.

The unsecured convertible debentures are convertible into Renergen shares upon the execution of the planned IPO on the Nasdaq. A structure like this gives the investor a debt position in the capital stack for now, with the ability to switch into equity if Renergen achieves its primary corporate goal of listing on the Nasdaq.

Schroder signs off on a disappointing quarter (JSE: SCD)

The NAV fell due to property valuation pressures

Property valuations had a tough time in 2023. The yield curve (off which properties are valued) wasn’t favourable, leading to Schroder’s net asset value dropping by 3.2% for the twelve months to December 2023.

The loan-to-value ratio finished the quarter at 24% net of cash or 33% gross of cash.

The group has decent dividend cover (comparing earnings to the dividend) and the first interim dividend reflects an annualised yield of around 7.8%. It’s quite unusual to see a property fund make reference to the yield on the share price.

A production issue at Sibanye – but thankfully no injuries (JSE: SSW)

There’s damage to the surface infrastructure at the Siphumelele shaft in local PGM operations

It doesn’t seem like Sibanye’s luck is turning positive just yet, with news of an accident at the Siphumelele shaft in Rustenburg where the group mines PGMs. The very good news is that there were no injuries. The bad news is that surface infrastructure was damaged, leading to suspension of production at the shaft. It accounts for 3.5% of annual PGM production from the SA operations. There’s no timeline for it to come back online yet.

Separately, the company announced the appointment of an executive to head up the uranium business. Greg Cochran has loads of industry experience and will hopefully help Sibanye achieve a solid outcome in that space.

South32 withdraws guidance for Australia Manganese (JSE: S32)

Tropical Cyclone Megan has damaged the infrastructure

Mining is a tough gig even when the weather behaves itself. When it doesn’t, things can get ugly. South32 is the latest victim of this, with Tropical Cyclone Megan having damaged the manganese operations in Australia.

At this stage, the company has identified flooding in the mining pits, damage to a critical road bridge and structural damage to the wharf and port infrastructure. At this stage, there’s not much indication of just how bad it is. All we know is that it’s bad.

Given the uncertainty, guidance for Australia Manganese has been withdrawn.

South Ocean released detailed results (JSE: SOH)

HEPS doubled in the year ended December 2023

For the year ended December 2023, South Ocean grew revenue by 26%. When a manufacturing company pulls off a top-line performance like that, things normally get exciting further down the income statement.

Indeed, electric cable manufacturing turned out to be far more lucrative in 2023 than in 2022, with HEPS up by 99%! The dividend per share was 83% higher at 11 cents per share.

As South Ocean is a tiny company with a market cap of just R300 million, liquidity is hard to come by in the stock. The share price is only 19% higher over 12 months at R1.47. Based on HEPS of 43.60 cents, that’s a Price/Earnings multiple of 3.4x.

Telkom agrees to sell its masts and towers business (JSE: TKG)

The buyers are Actis and Royal Bafokeng Holdings

Telkom has finally announced details of the disposal of the masts and towers business in Swiftnet. We now know that the bidder consortium is led by an infrastructure fund managed by Actis, with Royal Bafokeng Holdings as the B-BBEE partner. These are heavy hitters.

This is a category 1 transaction for Telkom, as the disposal price is more than 30% of Telkom’s market cap. This is a hugely important deal that allows Telkom to focus on growth in Openserve and its consumer business, while managing the ongoing challenges in the legacy businesses.

The enterprise value for the towers has been calculated as R6.75 billion. This is a debt free cash free number, which is then adjusted for the balance sheet items to arrive at the equity value. It’s quite unusual to see a shareholder loan not transferring to the buyer, with Telkom’s loan to Swiftnet of R225 million remaining outstanding i.e. still owed by Swiftnet to Telkom after the deal.

EBITDA (net of lease payments) for the 12 months to March 2023 was R896 million. It was R488 million for the six months to September 2023. If we annualise that interim number, the towers and masts have been priced on an EV/EBITDA multiple of just below 7x. That feels like a pretty good disposal price for Telkom.

There will be many approvals along the way before this deal closes. Still, the share price closed 4.8% higher in a show of appreciation.

Transaction Capital sells Nutun Australia (JSE: TCP)

The clean-up of the Transaction Capital “rump” continues

Transaction Capital has agreed to sell Nutun Australia Holdings to a wholly owned subsidiary of Allegro Funds, an alternative investments company with A$4 billion under management.

Nutun Australia Holdings has a 60% stake in Recoveries Corporation Holdings and a minority stake in Revive Financial Group. The business has various structures across Australia, New Zealand and Fiji. The South African operations of Nutun help to service the businesses with engagement support services and associated technologies.

Interestingly, aside from the deal to sell the equity, Nutun has entered into a long-term strategic partnership to continue providing support services to the offshore business. Nutun will be restricted from directly offering its services into the Australia and New Zealand markets for up to five years.

After adjusting for net debt and minority shareholders etc. the gross sales proceeds to Nutun will be up to A$58.3 million. A$54.4 million will be received up-front and the remaining A$3.9 million will be payable in April 2026 subject to potential warranty and indemnity claims.

The proceeds will go a long way towards giving Nutun a stronger balance sheet.

Workforce Holdings had a torrid time in 2023 (JSE: WKF)

The group has swung sharply into a headline loss

Workforce Holdings has released a trading statement dealing with the year ended December 2023. It wasn’t a happy time, that’s for sure.

After reporting HEPS of 46.8 cents in the comparable period, the headline loss per share for this period is estimated at between 11.36 cents and 16.04 cents. Ouch.

Aside from adverse trading conditions, the group has also attributed this pain to substantial credit losses that were responsible for 35 cents per share worth of losses.

Little Bites:

  • Director dealings:
    • A non-executive director of British American Tobacco (JSE: BTI) has bought shares in the company worth $153k.
    • The CEO Designate of Primary Health Properties (JSE: PHP) bought shares worth £137k.
    • Although a director of a major subsidiary of Vodacom (JSE: VOD) bought shares worth R305k, I must point out that it was due to needing to meet the minimum shareholding requirement for the forfeitable share plan. It’s therefore not a purchase in the way we usually like to see, but I’m including it here to show you the different types of purchases.
    • A prescribed officer of Thungela (JSE: TGA) sold shares worth R147k.
  • If you are a Fortress (JSE: FFB) shareholder, then be aware that the cash dividend of 81.44308 cents per share has a scrip dividend alternative at a 5% discount to the five day VWAP ending 28 March. You can also choose to receive it partly in cash and partly in shares.
  • Kore Potash (JSE: KP2) has raised $530k through the issuance of five separate convertible loan notes. The net proceeds will be used to work towards the signing of an EPC contract for the Kola Potash Project. The company is currently in a closed period and the conversion of the notes is subject to the release of the annual report. The chairman of the company has indicated an intention to subscribe for $150k of shares on the same terms as this fund raising once results are released.
  • AB InBev (JSE: ANH) has completed the $200 million repurchase of shares from Altria, at a price per share of $59.9625. This is roughly in line with the current traded price on the market. The combined effect of the buyback and Altria’s offer of shares in AB InBev to the market is a reduction of Altria’s stake in AB InBev from 10.0% to 8.1%. It could reduce further if underwriters exercise their options. Importantly, AB InBev hasn’t issued any new shares here. In fact, it’s quite the opposite, as treasury shares went up after the buyback!
  • Rex Trueform (JSE: RTO) is acquiring a portfolio of Joburg-based properties for R51.5 million. Telemedia (a subsidiary of the group) is partly occupying these properties already and will now earn the rental income from other tenants. Only R7 million is being funded by Telemedia’s existing cash, with the rest raised as a mortgage bond. The acquisition yield is 9.1%. It’s beyond me why companies do this, unless there’s an exceptionally good reason why Telemedia needs to occupy these properties into perpetuity.
  • Tiny little Telemasters (JSE: TLM) released a further trading statement showing an improvement in HEPS by 160% to 0.61 cents vs. a loss of 1.02 cents in the comparable period.
  • Gavin Griffiths, the current Chief Strategy Officer and Interim CFO of ArcelorMittal (JSE: ACL) has been appointed as the permanent CFO. That certainly isn’t an easy job.

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

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

Exchange-Listed Companies

Following the completion of a four-month due diligence process, Copper 360 has provided an update to shareholders on its November 2023, R200 million acquisition of Nama Copper Resources. The Nama Copper plant has exceeded expectations vis-à-vis structure, integrity and performance and a management team appointed. Copper 360 has paid a total of R140,5 million to Mazule Resources with a further R9,5 million due to be paid in the next two weeks. It will no longer pay a further R50 million to Mazule as it has concluded a new offtake agreement with Fujax UK.

MC Mining’s independent board committee continues to advise shareholders not to accept the A$0,16 per share cash offer from Goldway Capital Investment. It draws shareholders’ attention to the independent expert’s report which has found that the offer to be neither fair nor reasonable suggesting rather, a range of between $0.214 and $0.356.

Unlisted Companies

NCino is a financial technology company headquartered in Wilmington, North Carolina, has acquired DocFox in a deal valued at US$75 million. DocFox, based in Johannesburg, automates the process of onboarding and account opening for banks. The software will be integrated into nCino’s tech stack offering financial institutions a wider range of services to offer clients.

Local liquor retailer Norman Goodfellows has acquired a substantial interest in Port2Port.wine, an online fine wine marketplace. Norman Goodfellows brings to the table its logistics network, warehousing capabilities, and a broad product range, particularly in spirits. Port2Port.wine will continue to operate as an independent brand under its current management team.

Under business rescue since 2022, Baywest Mall in Nelson Mandela Bay and Hemingways Mall in Buffalo City have been acquired by Hangar 18. The properties acquired in September 2023 were each purchased for R1,3 billion.

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

Weekly corporate finance activity by SA exchange-listed companies

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

Transaction Capital and WeBuyCars (WBC) have raised R902,7 million ahead of WBC’s listing in April in an oversubscribed bookbuild. In terms of the capital raise, 40 million WBC shares were issued, and Transaction Capital disposed of 8,15 million shares at a placement price of R18.75 per share. The shares represent 11.5% of the total issued shares of WBC. Based on the total of 417,2 million WBC shares in issue as at the listing date, the placement price of R18.75 implies a total market capitalisation for WBC of R7,82 billion.

As part of the WeBuyCars listing, Coronation Asset Management has subscribed for 9,12 million shares for an aggregate value of R171 million.

Brait has, via an accelerated bookbuild, placed 15 million Premier Group shares at R60 per share, raising gross proceeds of R900 million – up from the R750 million first announced thanks to strong market support. The placing shares represent 11.6% of the total Premier shares in issue and will reduce Brait’s interest in Premier from 47.1% to c.35.4%. The free float of Premier will increase from c.22% to 33.6%. The proceeds of the placing will be used for general working capital requirements and to reduce debt.

Grand Parade Investments has disclosed that during February 2024, the Group disposed of part of its investment in the Spur Corporation, divesting of 264,550 shares on the open market. The total sale proceeds amounted to R7,9 million.

Pepkor will take a secondary listing on A2X with effect from 2 April 2024. The listing will bring the number of instruments listed on A2X to 181 with a combined market capitalisation of c.R9,1 trillion.

A number of companies announced the repurchase of shares.

British American Tobacco has commenced its programme to buyback ordinary shares using the £1,57 billion net proceeds from its sale of ITC shares. The company will buy back £1,60 billion of its ordinary shares – £700 million in 2024 and the remaining £900 million in 2025. This week the company repurchased a further 300,000 shares at an average price of £24.16 per share for an aggregate £7,25 million.

AB InBev completed the specific repurchase of 3,335,417 of its shares from Altria. The aggregate repurchase price for the Direct Share Buyback was US$200 million at a price per share of $59.96. The shares will be held in treasury to fulfil share delivery commitments.

Thungela Resources has implemented a share repurchase programme ending 3 June 2024. The aggregate purchase price of all shares repurchased will be no greater than R500 million.

Hammerson, in accordance with the terms of its share repurchase programme announced on 12 March 2024, the company has, this week, purchased a further 2,664,939 shares at a volume weighted average price of 26,50 pence, for an aggregate £706,718.

Prosus and Naspers continued with their open-ended share repurchase programmes. During the period 11 to 15 March 2024, a further 3,894,006 Prosus shares were repurchased for an aggregate €106,44 million and a further 247 646 Naspers shares, for a total consideration of R755,8 million.

Following the successful completion of the buyout of MiX Telematics minorities by PowerFleet, the company’s listing on the JSE will be terminated on 3 April 2024.

Three companies issued profit warnings this week: York Timber, Sasfin and Workforce.

One company either issued, renewed, or withdrew a cautionary notice this week: Ibex Investment.

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

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

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

DealMakers AFRICA

Adenia Partners has announced the acquisition of 12 Air Liquide subsidiaries in West and Central Africa. The entities and employees in Benin, Burkina Faso, Cameroon, Congo, Ivory Coast, Gabon, Ghana, Madagascar, Mali, Democratic Republic of Congo, Senegal and Togo will form a new, independent, pan-African industrial gases group. Financial terms were not disclosed.

Kenyan insurtech mTek has raised $1,25 million. The funding was secured from Verod-Kepple Africa Ventures and Founders Factory Africa and will allow the company to expand in both Kenya and the East African insurance market.

Mobility fintech Moove, has raised US$100 million in a Series B funding round led by Uber with participation from sovereign wealth fund Mubadala and several other investors. Mubadala led the $550 million debt and equity round announced in August last year. Moove plans to utilise the funds to expand its existing markets from 13 to 16. This latest funding values the fintech at $750 million.

Savannah Energy has consolidated it position in the Stubb Creek oil and gas field. The company has signed share purchase agreements with Sinopec International Petroleum Exploration and Production Services and Jagal Ventures to acquire 100% of Sinopec International Petroleum Exploration and Production Company Nigeria, which has a 49% non-operated interest in Stubb Creek, located in Akwa Ibom State. Universal Energy Resources, a Savannah Energy affiliate, is the 51% owner and operator.

Nigerian fintech Zone (previously Appzone) has raised $8,5 million in seed funding. The round was led by Flourish Ventures and TLcom Capital. The funding will be used to scale the fintech’s decentralised payment infrastructure.

Namibia Critical Metals has sold four non-material gold properties in Namibia to Sylla Gold Corp. Sylla will acquire the company’s 95% stake in its Namibian subsidiaries that own the rights, title and interest to the Grootfontein, Erongo, Otjiwarongo and Kaoko licences plus certain associated assets, Financial terms include 3 million Stylla common shares and a cash payment of US$100,000.

Acasia Ventures has led a six-figure bridge round in Egyptian healthtech, Pharmacy Marts. The Cairo-based digital marketplace aims to digitise the pharmaceutical industry’s supply chain to improve patient access to medication. The company currently covers 12,000 pharmacies across Egypt with over 200 suppliers on its platform.

Kenya’s NCBA Group has signed a $50 million facility with Proparco to help facilitate green financing and Women Economic Empowerment in Kenya. The funding will help NCBA deliver on its “Change the Story” sustainability agenda.

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

Thumbs up for emojis

Brian Jennings and Storm Arends
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Thumbs up for emojis

The digital pictogram we know as the “emoji” was invented by Japanese artist, Shigetaka Kurita nearly 25 years ago. Its creation and subsequent acceptance by Unicode caused it to gain popularity and develop into a modern-day form of communication. The “face with tears of joy” emoji even won the Oxford Dictionaries’ 2015 Word of the Year Award. Having already crossed the boundary of what we understand language to be, it has now collided with the law of contract.

Canadian case law

In June 2023, the Canadian King’s Bench for Saskatchewan considered whether a valid contract was entered into when the “thumbs up” emoji was used. In other words, was there a meeting of the minds and a certainty of terms. Following various correspondence, in March 2021, a representative of South West Terminal Ltd (the buyer) sent a text message to the owner and operator of Achter Land & Cattle Ltd (the seller) in respect of its purchase of flax. The buyer drafted a contract, applied his ink signature to it, took a photo of the contract with his mobile phone and asked the seller to “please confirm [the] flax contract”, to which the seller replied with a “thumbs up” emoji. A dispute arose when the flax was not delivered in November 2021.

The court, after considering all the facts, took the view that there was a pattern in how the buyer and the seller entered into prior agreements and, therefore, was satisfied on a balance of probabilities that the seller did not just acknowledge receipt of the contract, but approved of it, like he had done on numerous occasions – except that, this time, he used an emoji to do so. The emoji that he used is also known to signify acceptance and approval. Further, the court found that a reasonable bystander, knowing all of the background, would have come to the objective understanding that there was consensus ad idem, a meeting of the minds. In respect of the requirement of there being a certainty of terms, the court found that, given the buyer and seller’s long history of doing business together, there was no uncertainty in respect of the terms of the agreement.

South African law

Considering the Canadian judgment above, one wonders whether this may be applied in South Africa. Section 13 of the Electronic Communications and Transactions Act 25 of 2002 (ECTA) provides for three scenarios:

  1. If a signature is required by law and the law does not specify the type of signature, the requirement is only met if, in relation to a data message, an advanced electronic signature is used.
  2. Where an electronic signature is required by the parties to an electronic transaction (which may be a transaction of a commercial or non-commercial nature) and the parties have not agreed on the type of electronic signature to be used, that requirement is met if (i) a method is used to identify the person and to indicate the person’s approval of the information communicated; and (ii) having regard to all the relevant circumstances at the time that the method was used, the method was as reliable as was appropriate for the purposes for which the information was communicated.
  3. Where an electronic signature is not required by the parties to an electronic transaction, an expression of intent or other statement is not without legal force and effect merely on the grounds that (i) it is in the form of a data message; or (ii) it is not evidenced by an electronic signature, but is evidenced by other means from which the person’s intent or other statement can be inferred.

Given the definition of “data” in the ECTA as “electronic representation in any form”, and that an “electronic signature” is “data attached to, incorporated in, or logically associated with other data and which is intended by the use to serve as a signature”, an emoji may, in our view, fall within the definition of “data”. If the emoji is attached to, incorporated in, or logically associated with other data, it could constitute an electronic signature if intended to serve as a signature, provided that a signature is not required by law.

Therefore, the first hurdle to pass under the ECTA is intent – both as to the use of the emoji as a signature, and, naturally, as a consequence, the intent to be bound by the contract. The ECTA does not prescribe that the intent must be actual intent – it can be evidenced by other means from which the person’s intent or other statement can be inferred.

Obviously, the use of, say, the “crying face” emoji could not, in any sensible understanding, constitute evidence of intent to serve as a signature. But the “thumbs up” emoji may be. It is clear that in the Canadian case, Justice Keen investigated the background to the parties’ conduct and how they usually conducted business, and concluded in paragraph 18 that:

“The question is not what the parties subjectively had in mind, but rather whether their conduct was such that a reasonable person would conclude that they had intended to be bound (Aga at para 37). The courts, when considering this question, are not restricted to the four corners of the purported agreement, but can consider the surrounding circumstances (Aga at para 37). The nature and relationship of the parties and the interests at stake help inform the question of an intention to create a legal contractual relationship (Aga at para 38).”

This is similar to our reliance theory, which requires a party to create a belief held by the other contracting party and for the other contracting party’s reliance on such belief to be reasonable in the circumstances. Taking into account all factors, the use of a “thumbs up” emoji (or even the “fist bump” emoji, which is also a sign of agreement) can constitute an intent to serve as a signature, if this can be inferred from such conduct and, therefore, constitute intent to enter into the resulting contract.

Until the South African legal system has to decide on a matter with similar facts, we may not have a clear answer on whether an emoji could replace signatures as we know them. Therefore, be mindful when contracting via messaging platforms like WhatsApp, as an emoji – depending on which one is used – may create a valid and binding contract. Much will depend, we believe, on the facts of the matter and whether reliance on the emoji could be said to be reasonable.

Brian Jennings was a Director (at the time of writing) and Storm Arends an Associate in Corporate and Commercial | Cliffe Dekker Hofmeyr.

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

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

Unlocking Africa’s economic potential by growing the continent’s trade volumes

Oluseyi Kumapayi
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Unlocking Africa’s economic potential by growing the continent’s trade volumes

In recent years, mergers and acquisitions (M&A) have emerged as a significant avenue for investment in Africa, attracting attention from both global and local market participants. Importantly, M&A has reshaped the banking industry’s dynamics and prompted debates on the implications for financial stability, competition and economic development. While there may be critics of M&A as it relates to consolidation, it is crucial to recognise the benefits that well-executed M&A can bring to the continent’s banking sector and economic fortunes.

Access Bank has been working tirelessly to execute our vision to be the world’s most respected African Bank. Through disciplined and carefully considered dealmaking, we have made great strides in building a strong global franchise, focused on serving as a gateway and support for investment and trade within key markets in Africa – as well as between Africa and the rest of the world – by leveraging the power of technology and a robust network of relationships across the countries in which we operate.

In the past 12 months alone, we have announced nine transactions in seven countries across the continent, including Uganda, Zambia, Angola, Tanzania, the Gambia, Sierra Leone and Cameroon. This has increased our reach and enabled us to establish operations across 14 African countries (with plans to expand to 20, in line with our 2027 strategy). While the main objective of every transaction has been to build the scale needed to become a major player in each of our markets, we continue to be guided by the belief that prosperity is cultivated through inclusive growth and economic development. The Bank has leveraged its propositions for Small and Medium Enterprises (SMEs), Women and Youth, and recognised their pivotal role as the backbone of a thriving economy. Our acquisitions, therefore, seek to enhance the capability of human capital in prospective countries, building their economic prosperity and creating positive impact in our host communities.

Our approach to M&A has also emphasised regional integration as a strategic imperative. In a continent marked by asymmetrical markets and economies, the African Development Bank (AfDB) has noted that regional economic integration is essential for Africa to realise its full growth potential, to participate in the global economy, and to share the benefits of an increasingly connected global marketplace. Having 54 individual countries, often without the physical and economic machinery to act in tandem, seriously limits this possibility. M&A is key to this integration, as it facilitates cross-border expansion, enabling banking institutions to play a significant role in fostering economic development.

The breadth of Access Bank’s operations across 20 markets globally will enable it to become Africa’s payment gateway to the world, creating a globally connected community, inspired by Africa. By building this multi-jurisdictional footprint, committing over US$680 million through greenfield initiatives and inorganic growth facilitated by targeted M&A activities, we have ensured that the continent’s most impactful customers are able to benefit from a larger combined balance sheet. Customers now also benefit from a broader international footprint – with increased access to trade finance, treasury, international payments and loans via Access Bank’s wider distribution network – and presence in the key trade corridors which connect Africa with Dubai, China, Lebanon, Paris, Mumbai, the UK and Hong Kong, as well as other key markets.

Access Bank has continued its impressive growth trajectory, both organically and by acquisition. Our most recent large-scale transaction was the acquisition of Standard Chartered Bank’s (SCB) operations across Angola, Cameroon, the Gambia and Sierra Leone, and its Consumer, Private & Business Banking business in Tanzania. Access Bank’s acquisition in these five markets aligns with its disciplined approach to expansion, representing a key step in its journey to build a strong global franchise, focused on serving as a gateway for payments, investment and trade within Africa, and between Africa and the rest of the world. Access Bank’s strategic global presence allows for enhanced cross-border transactions, correspondent banking services, and smoother remittance processes. This seamless global connectivity ensures that customers can conduct business efficiently, and access international markets with ease.

Moving further down south to Zambia, we have recently completed our acquisition of African Banking Corporation Zambia Limited, trading as Atlas Mara Zambia (Atlas Mara), after obtaining all requisite regulatory approvals. This transaction will propel the combined entity into the top five banks by revenue in the Zambian market, with prospects to be in the top three by 2027. We also expect to create a larger platform to access the COMESA banking opportunity, supporting customers within the region through the Access Bank network.

But these transactions only paint part of the picture, serving to confirm that an uptick in M&A in African banking should be viewed as a channel for investment, and a strategic move towards unlocking the continent’s immense banking potential. By fostering technological innovation, financial inclusion, regulatory compliance, regional integration, risk mitigation and international competitiveness, M&A emerges as a catalyst for sustainable economic growth and development in Africa. These advantages contribute to the industry’s adaptability, resilience, and ability to provide enhanced services to customers in an evolving economic landscape. As this transformative journey is navigated, it is imperative to recognise the long-term benefits that strategic consolidation can bring to the continent’s banking landscape, and its broader economy.

Access Bank’s vision for growth and expansion in Africa is a promising one that seeks to roll out initiatives that will further develop the African continent and, more importantly, reshape the global perception of Africa and African businesses.

Oluseyi Kumapayi is Executive Director | African Subsidiaries, Access Bank Plc

This article first appeared in DealMakers AFRICA, the continent’s quarterly M&A publication.

DealMakers AFRICA is a quarterly M&A publication.
www.dealmakersafrica.com

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