Impala Platinum’s earnings have nosedived (JSE: IMP)
This is hardly a surprise based on PGM prices
The pain in the platinum sector continues, with Impala Platinum releasing a trading statement for the six months to December that reflects an expected drop in HEPS of between 40% and 49%. Ouch!
With PGM prices still at depressed levels, the best that these mining houses can do is try to increase production and keep unit costs under control. There are many factors at play here, ranging from operational efficiencies through to the underground grade. The performance at individual mine level is always volatile of course, which is why mining groups have more than one mine!
In aggregate, gross group 6E production fell by 4% (gross indeed!) and refined 6E production was up 2%. Sales volumes increased by 5%, so they dug into the storeroom and sold more than they produced in this period.
Sadly, mining costs tend to go up with inflation even when the underlying commodity price doesn’t. Group costs per 6E ounce will be up by around 3%. Although that’s a pretty modest increase, it still comes at a time when PGM prices aren’t really behaving themselves.
This is why there is such a nasty expected drop in HEPS, coming in at between 184 and 217 cents for the interim period. Even if we just double the mid-point and assume 400 cents as a full-year earnings number, the current share price of R97.60 suggests a huge P/E multiple.
But here’s the thing: seeing such high multiples is typical in a depressed cycle. The old story goes that the right time to be terrified of mining stocks is when the P/E is nice and low! Despite the drop in earnings, Impala Platinum’s share price is up 59% in the past 12 months as the market has been pricing in some positive momentum in platinum prices, even if the timing of those price improvements wasn’t enough to save this result.
Mining is a difficult industry for investors and the platinum sector is probably hardest of all.
Santam’s earnings got even stronger in the second half of the year (JSE: SNT)
The momentum from the interim period is visible here
Whenever you see a significant percentage move in full-year earnings, it’s always worth going back to the interim period to get a sense of second-half performance relative to the first half of the year. Santam managed almost 35% growth in HEPS for the first six months, so that was a lovely foundation for the year. The great news for shareholders is that things got even better in the second half!
The expected HEPS for the year to December reflects growth of 40% to 60%. This puts them at HEPS of between R32.34 and R36.96 per share. At the mid-point, Santam is therefore on a Price/Earnings multiple of around 11x. This shows you the quality of the businesses that you can still get your hands on for low-teen multiples on the JSE.
The increase has primarily come from stronger underwriting results despite weather-related issues, so that’s an impressive performance. Of course, net underwriting margin does have a practical upper limit (or Santam’s policies would be uncompetitively priced), so investors also need to watch carefully for gross written premium growth. Santam has described that growth as “satisfactory” and we will have to wait and see what that means when results are released on 3rd March.
Nibbles:
Director dealings:
A director of Prosus (JSE: PRX), who also happens to be the ex-financial director of Naspers, sold a huge chunk of shares in Prosus worth around R375 million. No, that isn’t a typo.
A non-executive director of Collins Property Group (JSE: CPP) sold shares worth R1.1 million.
A director of Premier Group (JSE: PMR) bought shares worth R999k.
An entity associated with Warren Wheatley bought R69.6k worth of ordinary shares in Altvest (JSE: ALV), as well as R9.9k in Altvest preferred A shares (JSE: ALVA), R5k in Altvest preferred B shares (JSE: ALVB) and R14.9k in Altvest preferred C shares (JSE: ALVC).
Santova (JSE: SNV) has released a bland cautionary announcement, which means a cautionary announcement that gives almost no details whatsoever. They talk about “negotiations with parties related to potential strategic transactions” – and that could genuinely mean anything. Nonetheless, punters immediately got stuck in and the share was trading 8% higher shortly after the announcement.
I covered the Powerfleet (JSE: PWR) press release in yesterday’s edition of Ghost Bites, noting the significant uptick in revenue and adjusted EBITDA. For those looking for deeper insights, the full 10-Q report (US quarterly disclosure) is now available here.
Orion Minerals (JSE: ORN) has announced the appointment of a COO. The timing of this is important, as the Definitive Feasibility Studies for the two main hubs in the Northern Cape are almost complete. This means that Orion is going to move from explorer to mine developer, which of course is a big deal in the journey of any mining company. You only need a COO when you have some Operations that need an Officer, so this is a great milestone for the company!
Sable Exploration and Mining (JSE: SXM) released an announcement based on comments made at a general meeting of shareholders. Despite the CEO noting that there is a potential transaction in early stage of discussions, Sable isn’t trading under cautionary and they still aren’t under cautionary, with the company noting that the discussions are “preliminary” and thus caution isn’t required. Although it’s true that merely having discussions doesn’t immediately trigger a cautionary announcement, it’s still poor form to have mentioned it at the meeting with no cautionary in the market. It’s either too preliminary to be communicated to shareholders or it isn’t, but you can’t be half-pregnant here.
In case you’re still following Tongaat Hulett (JSE: TON), the company has announced the terms of the Mozambique transactions with the Vision Group. This is as part of the ongoing implementation of the business rescue plan that was adopted in January 2024.
Pan African Resources needs a strong second half (JSE: PAN)
It’s all about production numbers
At a time when the gold sector is filled with companies reporting lovely jumps in earnings, Pan African Resources had to send out a very different message. On a restated basis (particularly regarding timing of sales in the base period), gold sales decreased by 18% for the six months to December 2024. That’s definitely not what shareholders wanted to see!
Another factor that impacts the numbers, albeit to a far lesser extent, is that Pan African Resources reports in USD and the rand managed to improve by 4% against the dollar on an average basis for the period. This negatively impacts Pan African’s numbers.
Still, a drop of between 38% and 49% in HEPS (on a restated basis for the comparable period) isn’t pretty. They need a strong second half to the year to make up for this.
Are there reasons to believe that things will improve? Luckily, yes! They anticipate “much improved” production for the second half and again in FY26, driven by the timing of ramp-up or commissioning of major projects, as well as the expected contribution from Australia in FY26. Also, there’s a substantial forward transaction in place that is limiting the benefit of higher gold prices. This expires in February 2025, after which Pan African can enjoy the spot price in all its glory – a full 21% higher in USD vs. the average price they received in the current period.
Despite the 6% drop on the day, the share price is still up roughly 120% in the past 12 months.
Powerfleet jumped after raising guidance (JSE: PWR)
Nothing like a casual 23% move in the space of a day
Powerfleet has released earnings for the third quarter. The metrics that matter to US investors all went in the right direction, like total revenue and adjusted EBITDA.
So, let’s start at the top. With the Fleet Complete acquisition now in the numbers, total revenue increased by a meaty 45%. Service revenue was up 45% and product revenue grew 42%, so that’s pretty even across the group. Gross profit increased by 44%, or 57% if you make some adjustments for amortisation of intangibles. US investors just love adjustments.
This means that adjusted gross margin was over 60%, up from 55.5% in the prior year. This is where the importance of service vs. product revenue becomes clear, as the former runs at a margin of 69.3% and the latter is at 30.6%. This sort of thing will sound familiar to those who have looked at Apple in detail.
Adjusted EBITDA jumped 77%. Again, the Fleet Complete acquisition makes a big difference here.
Of course, any US-based technology company worth its salt knows how to report a large increase in adjusted EBITDA as well as a deterioration in the net loss at exactly the same time. Sure enough, the net loss has worsened from $0.05 per share to $0.11 per share. This includeS once-off costs related to the Fleet Complete deal, so some adjustment is warranted. Just be cautious of companies that only ever seem to make money on an adjusted basis.
The cash flow statement is usually a good place to look. For the nine months, Powerfleet generated $16.2 million in cash from operations and burnt through $23.8 million in investing activities, including $15.1 million in capex and $7.2 million in software development costs. They raised more short-term debt to help balance the books and still ended the period with $10.1 million less on the balance sheet than before. With $45.6 million total cash at the end of the period, they remain well-capitalised and I’m not suggesting a need to panic. Just keep an eye on how cash is generated by the group and where it then goes.
Of course, what the market loves most is seeing upgraded earnings guidance. Powerfleet’s share price closed 23% higher in response to these numbers and a modest upgrade to full-year guidance. For example, they now expect adjusted EBITDA to be $75 million instead of $72.5 million. That’s only a 3.4% increase to guidance, yet look at the share price reaction!
Telkom: an EBITDA margin story (JSE: TKG)
And the market likes it
Telkom closed 7.9% higher after releasing its trading update for the third quarter. This now makes it the best performing stock of the big three telecoms players over the past 12 months:
Before you get excited about investing in this sector, it’s worth including the performance for the same companies over five years. Although share price performance needs to be considered in the context of their dividend yield, none of these are exciting over that period:
The exception is Blue Label Telecoms, up 91% over 12 months and 167% over five years. There’s been so much change at that company that the performance isn’t indicative of business-as-usual or anything close to that. It’s very much a reflection of what’s happening at Cell C and how many investors are willing to untangle the web of complicated accounting disclosures.
What is underpinning this performance by Telkom? The answer doesn’t lie in group-level revenue growth, which was a paltry 0.9%. Of course, given the mix of growth and legacy businesses at Telkom, the underlying performance varies across business units. Mobile was the highlight, with service revenue growth of 9.6% – a genuinely impressive outcome!
Despite such little revenue growth overall, group EBITDA jumped by 28%. This means that group EBITDA margin came in at 27.2%, a whopping 580 basis points higher than 21.4% in the comparable quarter. Cost optimisation initiatives had a major impact here, as did property sales.
If we look at other important metrics, mobile subscribers increased by 21.6% and the number of homes passed with fibre increased by 13.1%, so this is an indication of where the growth is coming from. Notably, homes connected by fibre grew by 17.6%, so they’ve improved their connectivity rate. I must also point out that mobile revenue growth is well below subscriber growth or usage rates, which is the challenge faced by this sector: over time, our cellphone bills get cheaper and cheaper assuming consistent usage. Another important point to understand about the Telkom model is that they are focused on prepaid subscribers, with clever initiatives around affordable smartphones.
The balance sheet has been boosted by R621 million in cash proceeds from disposal of properties over the past nine months. They also expect the Swiftnet disposal to be concluded by the end of the financial year.
Speaking of the final quarter, they have a positive outlook heading into the end of the year. With results like these for the third quarter, I’m not surprised. Heck, they even had a more positive story to tell about BCX in this quarter and that’s not something you’ll see every day!
Nibbles:
Director dealings:
An independent non-executive director of KAL Group (JSE: KAL) bought shares worth R465k.
MTN Zakhele Futhi (JSE: MTNZF), the B-BBEEE investment structure for MTN, released a trading statement. MTN Zakhele Futhi is separately listed and available to qualifying investors, making it different from the vast majority of B-BBEE structures out there. I think focusing on net asset value per share is the right metric here, in which case the drop is between 29% and 49% for the year ended December 2024, driven by the decrease in MTN share price between the reporting dates. As you might recall, the Zakhele Futhi structure was extended to avoid it maturing at a very onerous time. Also, as the share price chart in the Telkom section showed, MTN has rallied spectacularly in the past few weeks, which is after the reporting period for MTN Zakhele Futhi.
A non-executive director has resigned from Huge Group (JSE: HUG). I usually ignore news like this, but in this case the director has been investing in Huge shares regularly through an investment structure. Michael Beamish joined the group in October 2022 and is now moving on, with the reasons being that he sees the company as stable and has confidence in the management team. The share price is down 47% over 3 years and is flat over 12 months. I guess “demonstrable stability” is one way to put it. Separately, the company announced that Beamish’s associated entity bought R11.7 million in shares and sold a similar amount to close out a CFD trade.
On the topic of independent director appointments that I can’t ignore, here’s a juicy one: Capitec (JSE: CPI) has appointed Raghu Malhotra to the board. This matters because he spent over two decades helping Mastercard grow and deliver on its strategic priorities, ending up as President of Global Enterprise Group at Mastercard before he retired. That’s a huge amount of experience to bring to Capitec as the group gears up for further growth. There’s no shortage of ambition at Capitec, that’s for sure.
Some local investors looking to diversify portfolios beyond developed markets in response to high valuations and slower growth are considering emerging market exposure in the hunt for better returns.
“Developed markets have become relatively expensive,” explains James Cook from the Investec Structured Products team.
For instance, the 12-month historic price-to-earnings (P/E) ratio of the Shanghai Shenzhen CSI 300 in China is 15.8 compared to 26.5 for the S&P 500 Index. The CSI 300 price-to-book ratio of 1.6 also compares favourably to the 5.2 of the S&P.
“Moreover, portfolios heavily weighted to developed markets ignore emerging opportunities in the rest of the world, along with important portfolio diversification benefits, as exposure to the CSI 300 in a global investment portfolio has shown a 0.34-0.36 correlation to developed market indexes such as the S&P 500, Euro Stoxx 50, and FTSE 100.”
As a means to provide emerging market exposure with low correlation returns to developed markets, Investec launched International Opportunities Limited, a five-year structured investment offering simplified access to the Chinese equity market.
“An Investec analysis that considered numerous factors shows China may be an undervalued emerging market with potential for upside,” says Cook.
“When the CSI 300 fell 32.1% from its high on 10 February 2021 to 31 December 2024, it may have created an opportunity to enter into the market.”
Cook explains that COVID lockdowns, trade wars and concerns about the property market contributed to the decrease in the Chinese stock market since 2021.
“There is a possibility that investors who withdrew funds from the market may redeploy capital if sentiment turns more positive, and potential future government stimulus could act as the catalyst for this renewed interest in the stock market.”
In addition, the country possesses some strong economic metrics, with the second-largest GDP globally and a relatively low debt-to-GDP ratio. The interest servicing costs in China are also lower than in the U.S., with 10-year treasury yields at 1.65% in China compared to 4.25% in the U.S.
Over the last decade, major equity indices have experienced growth that exceeds GDP growth in their respective countries, except for China.
For example, the S&P 500 has delivered a 194% return compared to a 52% rise in U.S. GDP over a 10-year period. In comparison, GDP growth in China was 86.8% vs. 52.5% for the CSI 300 Index in US dollars (USD), according to World Bank data.
Against this backdrop, Cook says the market could see a correction in China where stock market performance starts to close the gap with GDP growth rates.
Based on these factors, the latest structured product from Investec provides exposure to the Shanghai Shenzhen CSI 300 Index, which consists of 300 of the largest and most liquid A-share company stocks in mainland China.
“The structured product simplifies market access while offering diversification, growth potential, and capital preservation benefits,” explains Cook.
International Opportunities Limited is a company that was incorporated in Guernsey to buy financial instruments that create a structured payoff profile. Investors gain exposure to the structured product payoff by purchasing shares in the company.
At the start of the investment period, the company acquires a debt instrument, an equity option, and maintains a cash reserve for fees and expenses.
The company holds these instruments until maturity, offering 100% capital preservation in USD if held until maturity, subject to the absence of any credit events by the issuer or credit reference entities1.
“The product offers a unique payoff profile, providing exposure to the growth of the index, multiplied by a participation of 130%, up to a cap of 60% over five years,” explains Cook.
“This translates to a maximum return of 78% (130% x 60%) over the term, equivalent to a maximum annualised return of 12.2% in USD.”
At maturity, investors can sell their shares or retain them and gain exposure to the subsequent structured product offering within the company.
“This reinvestment strategy allows investors to effectively “lock in” returns by setting a new capital protection level while maintaining exposure to potential future market upside,” continues Cook.
This offers a significant advantage over direct investments in the market through exchange-traded funds (ETFs).
For instance, back testing that used historical data to calculate five-year rolling returns since the Index launched in April 2005 determined that the CSI 300 5Y rolling return was negative 27.6% of the time while International Opportunities Limited would have returned 100% of investor capital during these periods.
“The geared effect also meant the simulated structured product outperformed the price-only index 86.2% of the time,” adds Cook.
According to Cook, this capital protection feature addresses a significant challenge faced by investors who may be hesitant to sell their investments in well-performing markets to realise profits. “Those that hesitate may miss out on future growth opportunities.”
With its focus on capital preservation, growth potential, and diversification benefits, International Opportunities Limited may provide an interesting investment proposition for local investors seeking exposure to the Chinese equity market.
Local investors require a minimum investment of US$10,000 and applications close on 7 March 2025.
Listen to Japie Lubbe discuss the product on this Ghost Stories podcast:
Note: the transcript for the podcast can be found here.
The investor’s capital, in US dollars, is protected if the investment is held to maturity. Structured products provide principal protection through the assumption of credit risk. They are intended for sophisticated investors who understand and accept the risks associated. In this case, capital protection is achieved by buying credit-linked notes. Principal protection is preserved to the extent that the issuer continues to honour any outstanding obligations and the reference entities do not experience a credit event such as a default.
What does the world’s most popular music streaming service have in common with the mob? Aside from some playlists of Italian classics, only its (very effective) conversion strategy.
Here’s a word I learned this week: pizzo. No, not pizza, although the two words do originate from the same language. The word pizzo is derived from the Sicilian pizzu, which means “beak”, and is the term commonly used to describe the money a business owner may pay to the mafia in order to stop them from breaking their windows.
After a quick Google search, I’ve just discovered that there is a South African business named Pizzo, which sells wood fired pizza ovens. I wonder how much research they did before choosing that name?
We’re familiar with this concept here in South Africa, where it’s usually referred to as “protection money”, but the source of the practice appears to be Southern Italy. In 2008, an investigation into the matter revealed that approximately80% of businesses in Sicilywere paying pizzo monthly, with amounts averaging around €457 (R8,000+) for retail traders and €578 (R11,000+) for hotels and restaurants. Construction companies were hit the hardest, with some paying upwards of €2,000 (R38,000+) per month to protect their building sites.
For me, the ultimate irony of the whole pizzo story is the “protection” angle of the pitch. Mafiosos are essentially suggesting to business owners that paying them a monthly fee will afford them and their businesses protection from criminals. Business owners who refuse to pay the pizzo have their windows smashed and/or their shops burned down by the very same gangsters who were promising them protection. So at the end of the day, the only threats that the business owners ever needed protection against were the mafiosos themselves.
Is it illegal? Without a doubt. Unethical? Completely. But is it also a textbook example of a business profiting by solving a problem it created? Absolutely.
I can think of one business in particular that found a way to monetise the pizzo concept in a completely legal way. Can you guess which one it is?
Pay for Premium, or else
It’s Spotify, dear reader.
I understand that I’m making light of a real criminal problem, and by no means am I suggesting that extortion is a joke. But isn’t there an echo of this concept in Spotify’s strategy to convert Free users to Premium? Has anyone else noticed that 80% of the ads that interrupt a listener’s enjoyment of the Free service are ads for Spotify’s own Premium service? Can’t you just hear that hammed-up-Hollywood mafioso drawl, saying “Nice playlist you got there. Be a shame if someone put an unskippable ad for Spotify Premium in it”?
It may be devious, but there’s also no question that it’s effective. Yours truly is a prime example: I held out on Spotify Free for years before converting to Premium. The straw that broke the camel’s back in my case was a particular ASMR-inspired Spotify ad that was delivered entirely in breathy whispers and made me want to roll my car every time it came on.
The numbers confirm that I’m not alone: as of 2019, Spotify has a conversion rate of 46%, meaning almost half of its users opt to make the change from Free to Premium. Not only are they converting, but they’re hanging around too. The churn rate for the Premium service is almost laughably low at 4.6%, which means that 95.4% of Spotify Premium subscribers are retained over the period being measured for churn.
Let me assure you that this is not the case across the board for freemium business models. Inspired by the success of the likes of Spotify, many founders have launched as-a-service businesses and been terribly disappointed by the outcome. Consider this far more sobering set of numbers: Evernote has a conversion rate of 4%, as does Dropbox. Google Drive barely manages to convert 0.5% of its users to paid subscribers. Unsurprisingly, the benchmark for freemium conversion is set between 1% and 10%. Now work out the cost of building the freemium audience that you need to try and convert and you can quickly see where the venture capital money goes.
Is the solution for Google Drive to start showing users unskippable ads before they can access their docs, or is there more to Spotify’s strategy than meets the eye?
Do we really hate ads this much?
Nobody likes having their dinner party playlist or carpool karaoke session interrupted by an ad. But as annoying as those ads are, is it worth paying almost R70 a month (R840 a year!) just to make them go away? What else is there that makes Premium so different?
The answer is: not that much. And therein may lie the secret to Spotify’s conversion success. The differences between the Free and Premium versions are small but deeply annoying, meaning Free users get an almost-perfect product and a daily taste of how it could be better.
For starters, Free and Premium users get practically the same access to Spotify’s entire collection of over 100 million songs and 6 million podcasts. The difference lies in how they get to access the content. While Free users get unlimited streaming, they have to put up with the aforementioned ads, plus they can only access their music when they’re online (offline listening is reserved for Premium users).
Then there’s the issue of shuffling and skipping. Free users don’t have the option of selecting a particular song to listen to – if you were to search for Queen’s Bohemian Rhapsody, for example, the nearest that Spotify Free can get you is the opportunity to shuffle through Queen’s entire discography, hoping that you land on Bohemian Rhapsody at some point in the next three hours. You need to land on it soon too, since you’re only given 6 skips per hour on the Free service – after that, you’re at the mercy of listening to whatever plays next, whether you want to or not.
There’s something to be said for a business that understands how to weaponise a slightly-annoying user experience in such a way that it converts users upward instead of chasing them away. I’m still picturing those mafiosos, but I respect the results.
If you need final convincing that ads themselves may not be the main reason, consider that Netflix is making a fortune from its ad-supported tier. Many subscribers are happy to be served ads in exchange for a cheaper way to access their favourite shows on Netflix. I wrote about the Netflix Originals content strategy last week in this column.
A war of attrition
Still, Spotify’s conversion success remains something of a mystery – after all, if the formula was obvious, every freemium business would be replicating it. But in my opinion, those small, deliberate inconveniences seem to play a role. By giving Free users an experience that’s just good enough to keep them engaged but frustrating enough to make Premium feel like a necessity, Spotify has perfected the art of nudging users toward the upgrade. It’s a fine line between irritation and persuasion, and Spotify walks it masterfully.
About the author: Dominique Olivier
Dominique Olivier is the founder of human.writer, where she uses her love of storytelling and ideation to help brands solve problems.
She is a weekly columnist in Ghost Mail and collaborates with The Finance Ghost on Ghost Mail Weekender, a Sunday publication designed to help you be more interesting.
Nampak is about to bank another disposal (JSE: NPK)
Here’s yet more good news for the Nampak turnaround
Back in November last year, Nampak announced the disposal of the I&CS business, which operates in the industrial inkjet printing, laser marking and case coding space. The disposal price is R142.5 million, so that’s a handy additional source of funds for the ongoing Nampak turnaround.
The good news is that things seem to have moved quickly, with Competition Commission approval having been obtained. The implementation (and thus payment date) is 28 February.
A tasty jump in HEPS at RCL Foods (JSE: RCL)
This is despite pressure on volumes in various categories
RCL Foods has released a trading statement dealing with the six months to December 2024. They expect HEPS to jump by between 31.2% and 38.6% for total operations. Purely looking at continuing operations (which is the better way to do it), the increase is even better. They expect it to be between 34.5% and 42.1% higher, which means HEPS from continuing operations will be between 106 cents and 112 cents.
The market loved this, with the share price closing nearly 13% higher on the day!
Although there was pressure on volumes in most of the Groceries and Baking categories, there were various initiatives around sales mix and input costs that did the heavy lifting and took the numbers deep into the green. The Sugar side of the business also did well despite a demanding base period, assisted by a partial recovery of the additional levy raised by the South African Sugar Associated after Tongaat and Gledhow stopped paying their obligatory amounts.
Detailed results are expected on 3rd March.
Nibbles:
Director dealings:
Acting through Titan Premier Investments, Christo Wiese bought R496k worth of Brait ordinary shares (JSE: BAT).
The CEO of KAL Group (JSE: KAL) bought shares worth R190k.
The CFO of Stefanutti Stocks (JSE: SSK) has bought shares worth R97.5k.
Netcare (JSE: NTC) is struggling to get its succession plan executed at CEO level. The candidate they had identified for the CEO position is unable to assume the role as planned due to contractual obligations. Based on this, Dr. Friedland is staying on as CEO until the end of September 2026, which feels like a particularly long extension. They need to start from scratch in finding a replacement.
In further management surprises, there’s been a change of plan at Gold Fields (JSE: GFI) regarding the new CFO. Phillip Murnane is no longer able to join the company due to “personal reasons” – this has therefore allowed Alex Dall to take the post of permanent CFO after serving as interim CFO since April 2024. It seems they’ve now done the right thing, which is to appoint internal talent unless there’s an extremely compelling reason to do something different.
Sirius Real Estate (JSE: SRE) had a rather modest uptake of its dividend reinvestment plan. On the UK register, holders of only 0.18% of total shares elected to receive shares instead of a cash dividend. On the South African register, it was at least a bit higher at 3.18% of total shareholders. Still, with the share price down 14% in the past year, shareholders aren’t exactly jostling to the front to get more shares.
Telemasters (JSE: TLM) has been trading under cautionary based on a potential change of control after a B-BBEE company approached the two largest shareholders with a non-binding expression of interest. This has subsequently been withdrawn, with the excuse being delays to regulatory processes. Either way, that deal is off the table for now. Separately, Telemasters is in the process of looking at a substantial potential acquisition that would require shareholder approval. They have renewed the cautionary announcement in respect of this deal and a further announcement is expected later this month.
Diamond problems continue at Anglo American (JSE: AGL)
I’ve been warning you about lab-grown diamonds for how long now?
Anglo American has released a production report for the three months to December 2024. All businesses delivered on full-year production guidance, with some highlights in the quarter being copper and iron ore.
Guidance going forward is unchanged for copper and iron ore. Alas, the same can’t be said for diamonds, where they have decreased guidance for 2025 and 2026. I don’t think we are anywhere near equilibrium yet for mined vs. lab-grown diamond sales, despite a 26% drop in production in the fourth quarter and a 22% drop for the full year. From the first half to the second half of the year, diamond prices fell by 22.6%!
At this point, the only way a mined diamond ring is an investment is if the rest of the ring is made of gold. This is a huge worry for Botswana in particular, where diamond production fell 27% for the full year. Management keeps blaming a “prolonged period of lower demand” – of course, what they fail to point out is that the lower demand is for mined diamonds in particular.
If you scan the full year production numbers, the only commodity that was higher was iron ore – and by just 1%! Even copper was down 6% due to shifts in the copper portfolio in the past year. Speaking of copper, which is where all the hype has been in the mining sector, prices were up 8% for the full year. I must however point out that they were 6% lower in the second half vs. the first half.
The share price is up 34% in the past year. It also happens to be trading at the same levels as February 2021!
No respite for Anglo American Platinum investors (JSE: AMS)
Earnings are still sliding lower
Anglo American Platinum released a fourth quarter production update and a trading statement dealing with the year ended December 2024. Regular readers will know that a trading statement is triggered by earnings differing by more than 20% to the comparable period in either direction. Those who have followed the woes of the platinum sector will already know which direction is relevant here.
For the period, HEPS is expected to drop by between 36% and 46%. That’s another truly awful year to add to the pain that has been experienced since the peaks in 2022:
There’s really not much that the company can do when ZAR realised PGM prices fell 13%. The company also notes that palladium and rhodium realised USD prices fell 24% and 30% respectively. It’s impossible to do well under these conditions.
At least the company is still profitable, with expected headline earnings of between R7.6 billion and R9.0 billion. With expected HEPS of between R28.89 and R34.21, the mid-point suggests a P/E multiple of 21x! The usual story in mining is that a high P/E is actually a sign of the bottom of the cycle, rather than the top. This is counter-intuitive and certainly not the way things work in tech.
The company achieved its refined production guidance for 2024 and had a strong final quarter, so they are doing as much as they can. Those who have been trying to pick the bottom in this sector have thus far been wrong for the last 18 months. Could the Trump administration’s policies and a possible swing in favour of internal combustion engines by consumers finally give this sector a boost? With all the trouble in the global auto sector and with platinum as such a notoriously difficult sector to make money in, I’m sitting this one out.
ArcelorMittal is still in discussions with government about the longs business (JSE: GFI)
Will there be a way to save these jobs?
When ArcelorMittal announced that the longs business would be closing, I did wonder if this wasn’t simply the next step in the dance with government. Clearly, they are losing a fortune and it cannot continue. The point is that government doesn’t seem to take things seriously until a final warning shot has been heard. That seems to be the case here, as the closure has been delayed by one month to enable ongoing discussions with government. The IDC also put in funding support and ArcelorMittal is trying to fulfil the surprisingly strong order book as well.
Will there be a miracle here? And if there is, will it be on anything close to reasonable economic terms? It sounds like we will find out late this month.
In the meantime, results for the year ended December 2024 show why the group is in crisis. ArcelorMittal describes the current conditions as the worst since the global financial crisis, with international prices under pressure and all kinds of noise around protectionist trade policies on the global stage.
ArcelorMittal suffered an operational EBITDA loss of R1.1 billion in FY24, much worse than an already terrible loss of R0.6 billion in FY23. That’s before the impairment and associated charges in the longs business of R1.8 billion!
The headline loss is R5.1 billion compared to R1.9 billion in the prior year. A fully subordinated shareholder loan is helping to keep things going but this is clearly not a sustainable solution, hence the need to cut losses where possible.
The ArcelorMittal share price chart is incredible. Tragically, it largely tells the story of South Africa from an economic perspective over the past couple of decades:
A huge jump in earnings at DRDGOLD (JSE: DRD)
Mostly thanks to the gold price, of course
DRDGOLD has released a trading statement for the six months to December 2024. They expect HEPS to be between 60% and 70% higher, so there’s some happy news for shareholders.
Group revenue increased 28% and the rand gold price was up 26%, so you can see that almost the entire increase was thanks to the gold price. The increase in gold sold by Far West Gold Recoveries was driven by an increase in yield, so there are some operational positives as well.
Cash operating costs increased by 6%, so you can now see why HEPS jumped by such a big number. The investment in Ergo’s solar plant is helping here, with a modest increase in electricity costs despite substantially higher consumption due to an increase in tonnage throughput.
Even the cash flow story is positive, with a 12% decrease in capital expenditure and thus a major improvement to free cash flow. The group has no bank debt.
The share price is up 38% in the past 12 months.
Gold Fields delivered in line with guidance (JSE: GFI)
They had a solid finish to the year
In the mining industry, guidance on key metrics like production and all-in-sustaining costs (AISC) is the primary driver of the share price. It allows analysts and investors to form reasonable predictions for profits at different commodity prices. It’s hard enough estimating those prices, so mining companies that hit their guidance are rewarded by the market for at least taking that variability out of the equation. Of course, companies that miss guidance are punished.
Thankfully, Gold Fields delivered on its (admittedly revised) guidance for FY24, thanks to a helpful Q4 performance that saw the ramp-up of Salares Norte and a 26% jump in gold production. Group attributable gold production was 2,071koz (revised guidance was 2,050koz – 2,150koz) and AISC was $1,629/oz, up 26% year-on-year.
The substantial jump in costs was driven by a 10% decrease in gold sold, along with inflationary cost pressures and the usual suspects.
Despite the cost pressure, the gold price has worked its magic in the past year. This is why Gold Fields has indicated growth in HEPS of between 41% and 52%!
Hudaco had a much-improved second half, but it couldn’t save the full-year result (JSE: HDC)
And yet, the share price is up 22% in the past 12 months
Hudaco had a rough interim period in 2024. Earnings were down 15% at the halfway mark. They ended the year down 6.3%, so they had a reasonable finish to the year.
For all the GNU exuberance out there and the disappearance of load shedding, Hudaco notes that they “did not notice any meaningful change in business activity” – and that’s a concern. The ports are still a substantial problem and this is putting pressure on supply chains everywhere.
Turnover for the year was down 5.8% and operating profit fell 6.0%. It’s impressive to maintain operating margins when turnover is falling, so there’s solid cost-control at play here and a focus on gross margins. As we look at the segments though, you’ll see that there’s a mix effect here as well.
Hudaco’s consumer segment bore the brunt of the pain, with sales down 12.3% and operating profit down 19.9%. Operating profit margin was 12.2%, a drop of 120 basis points – this is what you would expect to see when sales are down. It was the engineering consumables business that saved the day, with turnover up 0.6% and operating profit up 7.6%. Acquisitions had a substantial positive impact here.
The balance sheet is also in good shape, with net borrowings down substantially over the past year. Working capital benefits were realised by inventory reductions in the group, particularly in the alternative energy business which found itself heavily overstocked at a time when load shedding went away.
Importantly, despite a 6.3% decrease in HEPS, the dividend per share was maintained at R10.25. This puts Hudaco on a 5% dividend yield, which means investors are getting paid to sit and wait for better profits.
Improved momentum at KAL Group (JSE: KAL)
This is one of the more interesting strategies on the JSE
KAL Group is a pretty fascinating business. They operate in specialist retail in the agriculture industry, as well as in adjacent categories in agriculture and manufacturing. A large part of the business is fuel retail and they’ve made substantial acquisitions in that space.
Essentially, if you can imagine a farmer out there driving along in a Hilux or Land Cruiser, there’s a very good chance that this white (or sometimes brown!) Toyota has been driven to a KAL business of some description.
At the end of FY24, trading profit growth was trending lower. The good news is that an update at the AGM has confirmed that the first quarter of FY25 has reversed that trend, other than in the manufacturing segment. Margins are still facing some pressure though, with EBITDA only up 1.8% despite revenue being 4.1% higher. This is a good indication of like-for-like growth, as there haven’t been any major expansions or acquisitions affecting this period.
So, aside from disappointment in building materials, KAL has seen much improvement after a slow finish to FY24. They’ve also experienced an increase in fuel trading profit despite an average 18% decrease in fuel prices!
Net interest-bearing debt has also reduced and the debt-to-equity ratio is down from 59% to 49%.
Although key metrics are going the right way, the same can’t be said for the share price. It has suffered the sell-off that we’ve seen across most South African consumer stocks and needs to find some support:
Another year of deteriorating rail performance made things difficult for Kumba Iron Ore (JSE: KIO)
Transnet remains the biggest constraint here
Kumba Iron Ore released both a production update and a trading statement. Let’s jump straight to the latter, where we find the most unfortunate news that HEPS for the year ended December 2024 is expected to be down by between 43% and 48%. Ouch!
The reasons? Lower export prices and a 2% drop in sales volumes. If your two key drivers of revenue head in the wrong direction, you’re going to have a bad time.
There’s nothing that Kumba can do about export prices. Sadly, sales volumes are also largely out of their hands, as Transnet’s rail performance remains the bottleneck. All that Kumba can do is produce in line with the volumes that Transnet is able to transport by rail. Otherwise, they just end up with expensive stockpiles.
Don’t get excited about improvement in years to come. After producing 35.7 Mt in 2024, guidance for 2025 is 35 – 37 Mt. Due to planned work around the plants, production guidance in 2026 is only 31 – 33 Mt. In 2027, they think it could come back up to 35 – 37 Mt.
So, unless iron ore prices head in the right direction, it’s a rough few years ahead. This is why the share price is down 36% in the past year.
Lesaka Technologies is a genuinely interesting local company that is building out an empire in the fintech space. This means you’re going to see a style of reporting that is typical of tech startups, with focus on adjusted EBITDA in particular.
It’s also all about hitting guidance rather than being highly profitable at the moment, as the group is firmly in growth phase. It’s therefore very helpful that Lesaka achieved its revenue guidance for Q2 2025 and was ahead of adjusted EBITDA guidance, even though the net loss actually increased substantially year-on-year due mainly to negative fair value movements in a non-core asset.
They also report something called fundamental earnings per share, which improved by 12% and was positive.
Moving on from the various ways of slicing and dicing the group results, we reach the segmental view. The merchant division saw revenue decline 5%, but net revenue (which is more important) was up 68% and adjusted EBITDA was up 32%. The consumer division saw net revenue increase by 31% and adjusted EBITDA jump by 61%.
The group has now delivered on profitability guidance for ten quarters in a row. The market appreciates this kind of consistency, which is one of the reasons why the share price is up 34% in the past 12 months.
Guidance for FY25 is adjusted EBITDA of R900 million – R1 billion. In FY25, they expect this to jump to R1.25 – R1.45 billion. The acquisition of Recharger is included in that guidance.
Nibbles:
Director dealings:
An independent director of KAL Group (JSE: KAL) bought shares worth around R475k.
MAS (JSE: MAS) has renewed the cautionary announcement related to negotiations with Prime Kapital regarding the 60% interest in PKM Development Limited. They hope to finalise contracts before the release of results for the six months to December 2024, so that implies that there are only a few more weeks to wait.
After the suspension of Exxaro’s (JSE: EXX) CEO Nombasa Tsengwa and all kinds of allegations flying around of an intimidating management style, we’ve now arrived at an outcome where she has resigned with immediate effect. This is despite a court bid to challenge the suspension, so I’m not sure what will now happen there. The details may all stay under wraps now, as is often the case when an executive chooses to leave. Finance Director Riaan Koppeschaar has been acting as CEO during the suspension and will continue to do so until a permanent CEO has been appointed.
Mantengu Mining (JSE: MTU) is acquiring an iron beneficiation plant in Limpopo for just under R19 million. The plant is modular by design and Mantengu can deploy it at strategic locations to reduce the cost of production. Mantengu has acquired the plant out of a liquidation sale and so they probably got it for a great price. The announcement certainly has lots of promising statements around lower cost production and creating value for shareholders. There’s also a chance of Mantengu acquiring the entity that is currently being liquidated, which would lead to it holding shares alongside the IDC.
To support its acquisition and business plans in the UK, Sirius Real Estate (JSE: SRE) has appointed a senior executive to BizSpace. Here’s the interesting thing: the executive comes with deep experience in the self storage space, an area that Sirius already has extensive investments in. Clearly, they are looking to add to that. This will include the conversion of several sites within the existing portfolio.
Jubilee Metals (JSE: JBL) is ready to catch up on lost time at its Roan operations. With a power source now secured, they are investing in 200,000 tonnes of copper material which is available for immediate processing at Roan. This more than doubles the waste material currently being processed. If all goes well, they have the capacity to do far more high grade material and they also have the option to increase the allocation of material. Perhaps most interestingly, they are paying for the material by issuing new shares! The issue price is 4.20 pence per share, which is slightly above the current spot price. The shares are subject to a 180-day lockup period. For context in terms of size, this copper materials deal is valued at $2.7 million and Jubilee’s market cap is R2.8 billion. This seems like a very cute trade to me! They are also finalising the due diligence on the Large Waste Project and hope to conclude the transaction by March 2025.
Hosken Consolidated Investments (JSE: HCI) holds 51% in Impact Oil and Gas, which in turn is a 9.5% participant in two blocks offshore Namibia. Impact released an update after completing drilling in one of the blocks, where black oil was encountered. The management commentary sounds bullish about what this means for the strategy to “prove up” resources and move towards the first development.
Trencor (JSE: TRE) has finalised the dates for its R7.30 special dividend. The current share price is R8.25, so this is the bulk of the value in the group being distributed to shareholders. The record date is 21st February and the payment date is 24th February.
Copper 360 is in the process of developing the Rietberg Mine. For the first time in 42 years, there has been an on-ore blast at the mine. There’s going to be more of this, as development at Rietberg Mine will continue over the next 9 months.
I’m certainly no geologist, so I can only repeat the message that management has driven home here: this moves Copper 360 past the “historically unpredictable broken and transitional rock” to “structured hard rock” – and no, this has nothing to do with a musical journey across the decades. Instead, it has to do with the certainty with which Copper 360 can estimate the grade and other characteristics, as harder rock has higher in-situ copper grades.
Sappi had a strong quarter (JSE: SAP)
Especially when you compare it to the prior year
Sappi has released results for the first quarter of the financial year. This covers the three months to December 2024. The improvement vs. Q1 in the prior year is remarkable, with a 7% increase in revenue and a 56% jump in adjusted EBITDA. That was enough to swing from a loss of $126 million to a profit of $70 million!
They attribute this to a broad range of positive factors, ranging from selling prices and sales volumes through to cost savings. They’ve had to struggle through a difficult global macroeconomic backdrop that has seen much disruption to segments of the paper industry in regions like Europe. A number of these challenges are still there, but Sappi’s willingness to act has ensured that the group can still succeed.
The metric that went the wrong way year-on-year was net debt, up 16%. This was due to higher capital expenditure (attributed to the Somerset Mill) and a working capital outflow based on timing of debtor receipts and an inventory build ahead of the Somerset Mill PM2 outage scheduled for Q2. One of the offsetting factors was the receipt of proceeds from the sale of Lanaken Mill. It’s worth noting that a quarter-on-quarter view shows that net debt decreased over three months when translated into dollars.
Prepare yourself for a second quarter that isn’t as strong as this quarter. Aside from external pressures ranging from a seasonal slowdown in China through to ongoing weak markets in Europe and of course tariff uncertainties, there’s also the planned work at Somerset Mill PM2 that will see it shut for an expected 70 days. Ramp-up of the converted facility will see more sales to the lower margin food service market, so that’s also going to impact the numbers. They expect a $21 million impact just from Somerset Mill.
There are other maintenance shuts planned for the quarter as well. Notably, these happened in Q1 last year, so this impacts year-on-year comparability, especially when they are expected to have a negative impact of $45 million!
On top of all this, they have raised capital expenditure expectations for the year. Along with the warnings around the second quarter, this would’ve contributed to the share price closing 4.8% lower despite the strong year-on-year view. Sappi is now flat over 12 months. You really don’t get much in the way of long-term returns in this sector beyond the dividend, so I see it as more of a trading stock than an investment stock.
As you would expect, Sasol’s earnings are down (JSE: SOL)
Oil prices, margins and sales volumes all went the wrong way
Sasol’s most recent production update gave us a strong clue that earnings weren’t going to be a story of joy and happiness. The market braced itself with a major sell-off, although we now find ourselves in a situation where Sasol is basically flat year-to-date!
Market volatility and noise aside, Sasol has now released a trading statement for the six months to December 2024 that confirms the pressure on profits. Adjusted EBITDA is expected to be between 11% and 22% lower, while headline earnings per share (HEPS) is down by between 26% and 36%. This puts interim HEPS at between R6.00 and R8.00. The current share price is just above R88.
There are a few reasons for the drop, with a decrease in sales volumes obviously not helping in the slightest. Sasol also suffered from lower Brent Crude oil prices and a “significant” decline in refining margins. A mitigating factor was an increase in the average chemicals basket price, as well as Sasol’s initiatives around costs and capital expenditure.
Still, it sends a message about the troubles at Sasol that there was another R6.2 billion worth of impairments in this period. That’s even worse than R5.8 billion in the comparable period. The major contributor was capitalised costs of R5.6 billion at Secunda and Sasolburg, all of which were impaired to take the value of that business back down to zero on the balance sheet.
These impairments don’t impact HEPS but they do impact Earnings Per Share (EPS). One of the biggest differences between HEPS and EPS is that the former strips out the impact of impairments (and a few other things). That’s why EPS fell by between 47% and 61%, a far more severe drop than in HEPS, despite impairments being in the prior and current periods.
Sea Harvest’s adjusted HEPS has moved lower (JSE: SHG)
And in this case, the adjusted number is the right one
At first, I got quite a shock when I saw that Sea Harvest’s HEPS for the year ended December 2024 would be down by between 42% and 47%. The very next paragraph in the announcement explains it though, as there was a once-off gain included in HEPS in the comparable period. Although most once-offs are removed, there are some that don’t meet the definition for HEPS.
To avoid skewing the numbers, companies then report adjusted HEPS, as is the case here. On that metric, Sea Harvest experienced a decrease of 2% to 7%, which suggests a range of 61.2 cents and 64.5 cents. That’s a lot more reasonable.
Underneath all this, we find 7% revenue growth in the South African hake business despite low catch rates. The pelagics and dairy segments put in a strong performance, but an oversupply of prawns impacted pricing – talk about a high quality problem for consumers! Other issues included reduced demand based on economic pressure in China, which in turn impacted abalone pricing.
And you don’t have to be a fishing expert to understand this next source of pressure: high interest rates and levels of debt. The bankers get to eat at the table before shareholders do.
The share price closed 4.9% lower and is now only slightly above the 52-week low.
Sirius Real Estate has announced yet another acquisition (JSE: SRE)
As I wrote yesterday, you can expect to see more of these!
Even though the ink is barely dry on the first SENS announcement this week that dealt with the acquisition of Reinsberg business park, Sirius Real Estate is out with news of another acquisition. This second transaction is smaller and is in the other region of interest: the UK.
Unlike the Reinsberg deal, the Earl Mill business park in Oldham in the UK has 95% occupancy. Despite this, they managed to buy on the asset on a huge net initial yield of 13.9%. Remember, the higher the yield, the cheaper the asset!
I can only think that the property needs a fair bit of capex or that the lease is expiring soon, as that acquisition price doesn’t make sense in any other context. The announcement isn’t explicit on this though, with only a passing mention of future value creation opportunities linked to vacant space, environmental ratings and future development.
When you’re buying on a yield of 13.9%, you don’t need to worry about future value creation. The deal itself is creating value!
It’s just a pity that the deal is only sized at £5.7 million, which makes it much smaller than the €20.4 million Reinsberg deal that was at a far less lucrative yield.
Nibbles:
Director dealings:
An entity associated with Michiel le Roux, co-founder of Capitec (JSE: CPI), has added another 100,000 Capitec shares to a hedging transaction that goes back to August 2021. The original transaction covered 330,000 shares and there was a further transaction in November 2024 for 95,000 shares. The new structure includes put options at strike prices of R2,660 and R2,811 per share (depending on which tranche) and call options at R3,643 (it sounds like that call option strike now applies to all the shares from November 2024 and this tranche). For reference, the current spot price is R3,118.
Although I usually don’t comment on changes to stakes held by asset management firms in listed companies, I think there’s enough noise around Renergen (JSE: REN) to warrant a mention that Mazi Asset Management has upped its stake from 9.21% to 13.53%. Mazi are either going to look like heroes or fools here, as this is about as risky as it gets right now. Hopefully it will be the former!
It’s not absolutely clear at this stage whether Emira Property (JSE: EMI) will still going ahead with the second tranche of a deal with DL Invest Group in Poland. The date for delivery of the subscription notice has been pushed out to 28 March 2025, failing which it will lapse. To get that done, Emira needs to release a Category 1 circular, which requires a lot of financial information. Emira is trying to finalise the circular and meet the deadline, so for now at least there’s still a willingness from the company to push through. This is also of relevance for Castleview (JSE: CVW) shareholders, as Castleview holds 59.3% in Emira.
In very sad news from Harmony (JSE: HAR), there have been two separate loss-of-life incidents leading to five employees passing away. Two were involved in a mining incident at Doornkop Mine in Soweto and three in a fall of ground incident at Joel Mine in the Free State. These are obviously unrelated incidents and they show how much danger there still is in mining.
Sebata Holdings (JSE: SEB) finally released earnings for the six months to September. Revenue was R84 million and the headline loss per share was 0.13 cents, which is better than the loss of 9.91 cents in the comparable period.
There’s been a substantial change to the shareholder register at South Ocean Holdings (JSE: SOH). Metallic City International Limited sold its 20.19% shareholding to SAF Metal Holdings LLC, a US company. Will there be more action here? Only time will tell.
Oando (JSE: OAO) is executing what sounds like a scrip distribution based on one new share for every twelve held. There are two tranches, the first of which is this month.
Bowler Metcalf’s margins have jumped, but it’s mainly for non-recurring reasons (JSE: BCF)
This is why you have to read carefully
A quick glance of the Bowler Metcalf numbers suggests that there is cause for celebration. Revenue increased 6% and profit from operations jumped by 22% – a lovely outcome indeed! Headline earnings was up 17%, so surely this is a decent story of maintainable growth in margins?
Sadly, the concept of headline earnings doesn’t adjust for every non-recurring item. It’s impossible to make a comprehensive list. In smaller companies especially, it’s very possible to have things in headline earnings that skew the numbers. In this case, it’s the non-recurring of once-off roof repair costs in the previous reporting period in the property segment. The Plastic Packaging segment generates over 90% of group profit and operating profit in that division was up 6.2% based on revenue growth of 5.8%. In other words, don’t get too excited about the margin trend here, as it isn’t reflective of the underlying business.
Another thing to keep an eye on is cash, which came under some pressure this period to support sales and buy strategic raw materials for inventory. They expect cash to normalise in the second half of the year.
This is a decent result from the company. It’s just nowhere near as exciting as it first appears to be.
Boxer continues to please the market (JSE: BOX)
Unlike practically every other retailer, their share price is slightly up year-to-date
After listing at the end of November 2024, Boxer has some big expectations to live up to. Thankfully, the recent trading performance is in line with the guidance in the pre-listing statement, so that’s the ideal start to life as a separately listed company. As a reminder, the guidance for FY25 is like-for-like growth of 5% – 7% and total sales growth of 10% – 12%.
For the 45 weeks to 5 January, they were near the top of that range with like-for-like growth of 6.7% and total growth of 11.4%. Things did slow down in the latter part of that period though. For the 19 weeks since the interim period (i.e. the 19 weeks to 5 January), like-for-like growth was 5.5% and total growth was 10.8%. This was primarily due to the business lapping a much stronger base period in the second half of the year.
Oddly, product mix had a huge impact on how they calculate price inflation. Using Boxer’s standard methodology, they come out at 6.1% inflation. Adjusting for mix changes suggests inflation of 0.0%, which Boxer believes is a better reflection of what’s really going on.
Importantly, gross profit margin is in line with expectations and they are on track with store rollouts, including Pick n Pay conversions. There are always going to be some challenges (like delays in the granting of liquor licences), but overall this is a strong update that shows how Boxer is causing headaches for sector leader Shoprite in the lower-income side of the market.
Canal+ is jumping through the hoops to try make the MultiChoice deal work (JSE: MCG)
They really do want this thing
If you’ve been following MultiChoice recently, you’ll know that the only thing supporting the share price is the R125 per share deal on the table from Canal+. Without that, I genuinely don’t know where the bottom would be based on the extremely worrying recent numbers.
It’s therefore critical that the deal goes ahead. This hasn’t been a certainty, as there are major regulatory hurdles related to the complexities of B-BBEE laws and other laws applying to foreign ownership of a broadcaster.
Thankfully for all involved, the parties have come up with a structure that they reckon will work. It revolves around carving out MultiChoice South Africa, which holds the local broadcasting licence and the contracts with subscribers. This entity will be 51% Black-Owned, achieved through a 27% stake by Phuthuma Nathi, as well as two consortiums (Identity Partners Itai Consortium and Afrifund Consortium) and a trust for employees. MultiChoice Group, which by that stage will be owned by Canal+, will have a 49% economic interest in the local entity and 20% voting rights.
Assets not directly related to the broadcast licence but currently housed in MultiChoice South Africa will remain in that entity, with Phuthuma Nathi having a 25% stake and MultiChoice Group having 75%.
Of course, what is really sitting behind all this is the commercial arrangement between MultiChoice South Africa and MultiChoice Group. This is where the clever financial modelling would’ve happened to help Canal+ obtain the economic benefits that formed the underpin of the R125 offer.
The Competition Commission still needs to opine on the structure, so anything is still possible. Other regulatory approvals are also required across multiple jurisdictions.
As a reminder, Phuthuma Nathi is separately listed and you can invest in it directly if you are a qualifying Black shareholder.
Signs of life at Pick n Pay (JSE: PIK)
Growth is still far below Shoprite though
With Boxer now separately listed, you should refer to that update further up for how Pick n Pay’s investment in Boxer is performing. In this section, I’m focusing purely on Pick n Pay itself.
There is some positive momentum in like-for-like sales, which is encouraging. Although Pick n Pay’s like-for-like sales were up just 1.6% for the 45 weeks to 5 January, they were up 3.0% for the 19 weeks to 5 January. As selling price inflation dipped towards the end of the year, an increase in like-for-like sales is good news as it means that volumes are trending in the right direction.
Of course, due to store closures, total sales growth is going to be lower than like-for-like sales growth, but that’s part of the broader restructuring plan to try and emerge as a smaller but profitable retailer.
One of the usual growth engines, Pick n Pay Clothing, didn’t offer particularly exciting growth on a like-for-like basis. Like-for-like sales were up just 1.7% for the 45 weeks to 5 January, with store openings taking total growth to 10.0%. There was an improvement towards the end of the year at least, with like-for-like sales in the latter 19 weeks up to 3.6%. It’s in the green, but that’s nothing special.
Online growth was 42.5%, so a consumer preference for convenience shopping continues to shine through across the retailers.
The disappearance of load shedding and much improved market sentiment in South Africa gave Pick n Pay a chance. They have grabbed it with both hands and although growth is still far off the levels of Shoprite, at least they are heading in the right direction.
Sirius Real Estate acquires a business park in Germany (JSE: SRE)
And of course, it comes with an opportunity to actively improve the asset
Sirius Real Estate is sitting on plenty of capital that needs to be deployed. Cash drag is a real thing, so they also can’t wait forever to get the deals done. Luckily, this is bread-and-butter stuff for Sirius, especially when it comes to finding properties that have room for improvement.
This is the key feature of the Sirius business model: seeking out properties that have active asset management opportunities. In other words, they are fixer-uppers at least to some extent. Bonus points of course if they come with a decent existing tenant base that can generate cash flow while the rest of the property is sorted out!
This is exactly what they’ve found in Saxony, Germany. Sirius is acquiring Reinsberg business park for €20.4 million. The property is 75% occupied and they’ve acquired it on a 6% net initial yield after purchase costs. Importantly, the 25% vacancy is the opportunity to ramp up the income on the property and thus its value.
I expect to see many more acquisitions this year at Sirius that follow a similar playbook.
A director of a major subsidiary of KAL Group (JSE: KAL) bought shares worth R25k.
An associate of a director of Huge Group (JSE: HUG) bought shares worth R17k.
The ex-CEO of STADIO (JSE: SDO), Dr Christiaan Rudolph van der Merwe, will retire at the next AGM in June 2025. His position on the board will not be replaced. The company also announced management changes, including the current COO of Stellenbosch University being appointed as CEO of STADIO Higher Education. This is a clear separation of the roles of STADIO Group CEO and STADIO Higher Education CEO, with Chris Vorster continuing in his role as Group CEO. Private tertiary education remains a strong growth area in South Africa.
Assura plc (JSE: AHR) announced the completion of two development projects that are designed to be net zero carbon. There’s a huge focus on this in the UK and although the announcement doesn’t explicitly say this, taking this approach with new developments is the smart way to attract funding at preferential rates with an ESG lens.
Trustco (JSE: TTO) has given us a clue that the planned Nasdaq listing is still on the cards. They have set up a dedicated contact list for shareholders to communicate with them during a “transition period” between the removal of the current listings (if that goes ahead) and the new listing on the Nasdaq.
Sebata Holdings (JSE: SEB) now only expects to release financials for the six months to September 2024 by 7th February. This is after they released a trading statement on the 31st that noted that results would be released on the same day! Sigh.
The scheme of arrangement related to Workforce Holdings (JSE: WKF) has become unconditional, which means the price of 165 cents per share will be paid and the shares will be delisted.
Listen to this podcast to get insights into the retail sector from the first few weeks of trading in 2025.
In clothing, it’s quite clear that Pepkor and Mr Price had stronger numbers than The Foschini Group and certainly Truworths, yet the baby has been thrown out with the bathwater in that sector.
Woolworths is a hybrid model and this is reflected in the performance, with the food business looking far stronger than the rest of the group.
In grocery, Boxer has been the most defensive stock thus far in 2025 and had a solid festive season. Shoprite put in a predictably strong performance as well vs. peers. There are signs of life at Pick n Pay, but it remains well below Shoprite. Spar hasn’t delivered a trading update yet, so the focus there is on cleaning house and getting out of broken investments (like Poland).
We save the best for last: Lewis. The latest numbers are highly impressive and when you consider the discretionary nature of the business, the share price resilience in 2025 has been especially promising.
The Ghost Wrap podcast is proudly brought to you by Forvis Mazars, a leading international audit, tax and advisory firm with a national footprint within South Africa. Visit the Forvis Mazars website for more information.
Listen to the podcast here:
Transcript:
Some months are trickier than others when it comes to picking the key themes to cover in this podcast. Luckily, January 2025 was rather obvious though: the retail sector.
If my Little Ghosts had come into this year holding a basket of local retail stocks, they would definitely be telling me about their “owie” – and I’m afraid that neither a kiss nor a plaster would fix it. The clothing retailers really bore the brunt of the sell-off, with Woolworths as the best of a bad bunch, down 4%. Let’s face it, that’s only because of the Food side of the business, which makes Woolworths quite hard to classify in terms of its true peer group.
Truworths is down 17% thus far this year, deservedly holding the wooden spoon in the sector. The Foschini Group isn’t far behind with a 16% drop. Mr Price has been dealt a rather harsh hand I think, down nearly 14% despite releasing strong sales numbers. Pepkor is down 7% and that’s also despite releasing really strong numbers.
It’s a bloodbath.
On the food side, with Woolworths shown once more for completeness, we see the defensive nature of these stocks shining through. The market is still strongly in support of the Boxer story, with a flat performance there despite some pressure in late January. Predictably, Shoprite has suffered less than its peers (other than Boxer), but is still in the red. SPAR has had a tough start to the year and Pick n Pay has been similar.
Not shown on either of these charts is Lewis, with a decline of just 0.9%. Yes, when it comes to the retailers, only Boxer has beaten Lewis thus far in 2025. How many people would’ve guessed that, coming into this year?
Clothing: the tide is out
We can well and truly see who has been swimming naked. Truworths is the worst of the lot, with Truworths Africa down 1.1% for the 26 weeks to 31 December. Sure, they may have achieved 9.9% growth in Office UK (measured in ZAR), but Truworths Africa is still two-thirds of group revenue and we know how fickle the UK retail market can be. Banking on sustainable growth into the UK is a risky game and the market clearly shares that view, as the share price has been punished for the tepid growth in Truworths Africa. For the 26 weeks to 29 December 2024, Truworths expects HEPS to be between 4% and 8% lower. That’s poor.
The Foschini Group is better than Truworths but is in no position to be looking smug here either. Although we have to be careful here as we aren’t looking at exactly the same reporting period, TFG Africa grew 5.3% for the quarter and just 2.2% for the financial year-to-date – so that’s better than Truworths at least. TFG London was up 45.5% for the quarter and 7.2% for the financial year-to-date, both percentages in ZAR, so they are also seeing some joy in that market at least. As for TFG Australia though, the quarter saw a decrease of 3.0% and the year-to-date performance is a drop of 5.2%. TFG Australia is slightly bigger than TFG London, for now at least, so that offset much of the happiness in the UK and the group sales result was just 1.6% year-to-date. At least the third quarter saw growth of 8.4%, so there’s some positive momentum there, but it is still nothing amazing.
We now move on to Mr Price, where there’s a strong story to tell for the 13 weeks to 28 December 2024. Credit sales were up 5.7% but that’s not even the highlight. No, that honour goes to cash sales, up 11.1%. The group has won market share for six consecutive quarters and they even achieved the recent growth at a higher gross margin than in the comparable period. They came into the year priced for perfection in the market after a huge rally in 2024 that caught me by surprise. The recent sell-off is more a function of that valuation I think, than the recent results which were strong.
Finally, Pepkor. In my opinion, this is the best story of the lot. The two major segments put in solid high single digit growth and fintech was up a delightful 35% for the three months to December 2024. PEP and Ackermans (the key banners in the group) both put in strong performances and this is exactly why the fintech business also did well, as they work so closely together. In fact, Pepkor refers to it as a credit interoperability strategy. Tongue-twisters aside, it works and it works well. The disappointment in Pepkor was Avenida, the Brazilian business that I’m enjoying keeping an eye on. Like-for-like sales fell by 2.7% and they need to get that back on track. Still, that’s a small negative in an otherwise powerful result and the good news at Avenida is that sales have improved in 2025.
Woolworths: the hybrid option
Sometimes I wonder whether Woolworths will ever spin the food business off and list it separately. I don’t think it will happen as the operations are intertwined with the clothing side of the business, but it’s a nice dream. It’s certainly a far superior business to the Fashion, Beauty and Home (FBH) offering.
For the 26 weeks to 29 December, Woolworths Food grew 9.0% excluding the acquisition of Absolute Pets. FBH could manage just 2.5%, which puts them ahead of Truworths admittedly (not much of a benchmark) and pretty much nobody else. In fact, it may even be worse than that, as FBH growth was a paltry 0.9% in the last eight weeks of 2024, so it just got worse and worse. For two years in a row, they’ve been blaming supply chain issues. Look, if festive supply chains keep catching you by surprise, then I’m really not sure that retail is the right sector for you bluntly. It becomes almost a little embarrassing now to keep blaming external factors while underperforming competitors. It also keeps getting worse in Australia as well for them, with Country Road Group sales down 6.2% for the period. The same pressures that are seeing at TFG Australia are playing out at Woolworths.
If Food and FBH were listed separately, the share price chart would look like the two lines had a terrible fight and never wanted to speak to each other again, such would be the speed at which they headed in opposite directions.
Shoprite still leads
The giant of local supermarket retail continues to remind us why they are so respected. For the six months to 29 December 2024, sales from continuing operations increased 9.6%. Supermarkets RSA was good for 10.4%. Digging even deeper, Checkers and Checkers Hyper were up 13.5%, so that’s strong outperformance even vs. Woolworths Food as their arch-rival, never mind the rest of the sector. Shoprite and Usave were up 6.7%, which is still impressive, albeit much slower than Checkers and Checkers Hyper.
With the growth in the right place from a margin perspective, I expect to see a juicy jump in HEPS when results come out on 4th March.
Hot off the press, there’s an update from Pick n Pay. Although it’s strictly part of February, it would be really silly not to include it here. Pick n Pay managed like-for-like sales growth in the 19 weeks to 5 January of 3.0%. That’s an improvement on where they were of course, but it’s still way below Shoprite and you have to remember that Pick n Pay is closing supermarkets, so like-for-like growth is probably the most flattering view of the business. It’s also the most important view, but without new stores, there’s no other growth to add on top of that. Within that segment, we find Pick n Pay Clothing with like-for-like growth of 3.6%, so even that’s not much of a growth engine anymore it seems.
Over at Boxer, which of course is now separately listed, we see like-for-like growth of 5.5% over the 19 weeks to 5 January and total growth of 10.8% as the store footprint is still expanding. Boxer is the food retailer that is capable of keeping Shoprite on its toes, albeit in only one customer vertical.
In case you’re wondering, there’s no sales update from Spar. All we know is that the nightmare in Poland has come to an end and they’ve effectively paid the buyer R2.67 billion to drag the carcass away. Good riddance to it.
Ending on a positive note with Lewis
I can’t bucket them in with the clothing retailers or the supermarket retailers, even though there’s some overlap at category level or with specific divisions, like the furniture piece of Shoprite that is currently being sold to Pepkor. No, Lewis deserves to stand on its own here, particularly after the recent update.
Merchandise sales have been heading higher. For the third quarter, they came in at 9.9% – a lovely acceleration from 7.7% in Q1 and 9.3% in Q2. As this drives income and ancillary services revenue, the overall group result was revenue growth of 13.6% for the nine months to December. Suddenly, Lewis is putting its hand up as a growth stock rather than a value stock.
Much like at Mr Price, the big jump at the end of the year was cash sales. I think that tells us a fair bit about where the two-pot withdrawals went. After all, this is furniture we are talking about, suddenly paid for with cash.
This is the one obvious caution that I’ll leave you with: double-digit cash sales at Lewis almost certainly aren’t sustainable. But still, they deserve to do well after years of solid execution and great capital allocation decisions. Bravo!
Harmony is on track to exceed full year production guidance (JSE: HAR)
This is what the market likes to see
Harmony Gold has updated the market on its performance for the six months to December 2024. They achieved gold production of between 790,000 and 805,000 ounces. This is well down on the comparable period in 2023, in which they managed 832,329 ounces.
All-in-sustaining costs (AISC) will be between R960,000/kg and R985,000/kg. That’s a big jump from R843,043/kg in the comparable period.
If you look at the guidance for the full year, it gives us clues about the reasons for this. The comparable period saw higher production from the South African underground portfolio and Hidden Valley. Aside from planned production increases and decreases, there are also grade differences that have an impact on the amount of gold that actually comes out of the ground.
Despite this, the share price is up 82% in the past 12 months! There’s only one possible explanation of course: the gold price. Sure enough, gold has gone mad in the past year, up roughly 40% in USD.
Harmony reckons it can exceed full-year production guidance, which would then imply more than 1,500,000 ounces for the year. The total last year was 1,561,815 ounces, so it still looks unlikely that production will grow year-on-year.
Despite hoping to beat guidance on production, they don’t expect to do the same on AISC. Guidance of between R1,020,000/kg and R1,100,000/kg is still where they expect to end up. Anything inside that range is much higher than R901,550/kg in the previous financial year.
Thank goodness for the gold price, then.
A very unpleasant day for Merafe shareholders (JSE: MRF)
There’s nothing quite like a 20% drop to kick off a week
In and amongst all the market chaos thanks to the US, Merafe released some concerning news of its own. Doing this on a risk-off day was basically a guaranteed way to obliterate the share price. Sure enough, the share price closed an ugly 20% lower for the day.
The reason? The state of play in the global ferrochrome market and what it means for the ferrochrome smelting business that is operated as a joint venture with Glencore. They expect the prolonged downturn to continue in the near to medium term, so unless they can figure out a solution, they expect to see a reduction in ferrochrome production from May 2025 due to a potential suspension of certain furnaces.
This is obviously very bad news and a reminder why Merafe trades at such a low price/earnings multiple.
Pepkor’s credit and fintech strategy is a powerful growth flywheel (JSE: PPH)
And the back-to-school January story is very promising
Pepkor released a trading update for the three months to December 2024 and the market liked it, with the share price closing 3.4% higher. Context to this move is important, as Pepkor has now dislocated from the suffering of its peers in the past month:
It’s still red of course, but reading Pepkor’s update against what we saw from the likes of Truworths is quite something. It’s clear that one group has a coherent strategy and the other has a lucky UK business.
So, what is that strategy at Pepkor? Simply, they are focused on the fintech segment as a major source of not just revenue growth, but also margin improvement. Fintech is now bigger than the furniture, appliances and equipment (FAE) segment in terms of total revenue! This is what happens when fintech posted juicy growth of 35% vs. 8.4% in FAE and 9.2% in clothing and general merchandise (CGM). Mind you, there’s nothing wrong with those growth rates in either FAE or CGM!
The disappointment was actually in Avenida, which came as a surprise to me. Like-for-like sales fell by 2.7%. Although total sales there increased 11.3% in constant currency, they were down 9.7% in reported currency. I’m really hoping they get that story back on track. Things seem to have improved in early trade in 2025, at least.
Other interesting nuggets of information include the ongoing strength of PEP and Ackermans, up 12.1% and 9.7% on a like-for-like basis respectively. I must also highlight the Home division in Pepkor Lifestyle, which achieved 15.1% sales growth.
But now we get to the really big story: growth in credit sales of a whopping 30.9%, taking the contribution of credit sales from 13% to 16%. This is a direct result of the “credit interoperability strategy” in the South African business. The Fintech operations are driving this, along with other important business units like Flash and its revenue growth of 19.3%.
The strength continued into January, where group sales jumped by 17.8% for the first three weeks. Aside from an improvement to Avenida as mentioned earlier, they have had a great back-to-school season in PEP and Ackermans as the core businesses. Now they need to keep the momentum going!
Schroder European Real Estate’s gearing is coming down through disposals (JSE: SCD)
The European economic trajectory is murky to say the least
When property funds focus on reducing debt, it’s either because they currently have too much debt or they are worried about what the future holds. With a loan-to-value ratio of 25%, it seems to be the latter at Schroder European Real Estate, as that isn’t an over-geared balance sheet.
With the disposal of the 50% interest in the Metromar Joint Venture (holder of a shopping centre in Spain), they’ve managed to get rid of some debt. There was no equity value in that mall, so the debt (and the asset) was simply transferred to the purchaser. This reduced the loan-to-value from 25% to 21%.
The next reduction will come from the previously announced sale of a grocery asset in Frankfurt, with the deal expected to close in March 2025. The loan-to-value should drop by another 2%.
Super Group has released the circular for the SG Fleet disposal (JSE: SPG)
This transaction has been the only thing propping up the share price
Super Group is having a tough time at the moment. The underlying exposures are enough to give anyone a bad headache, with European car manufacturers and the operational metrics of Transnet as two of the biggest “success” factors in the group. The are more like failure factors at the moment, sadly.
There hasn’t been much for investors to hang their hats on in the past year, aside from the disposal of the SG Fleet business in Australia. You can see the impact on this chart of the deal news breaking at the end of November and full details coming out in early December:
Selling the perceived crown jewel in the business obviously doesn’t do anything to fix the other problems. It simply puts on a band-aid while they figure out what to do elsewhere.
In return for selling its 53.584% interest in SG Fleet, Super Group’s wholly-owned subsidiary is set to receive A$641.4 million, or roughly R7.5 billion. For context, Super Group’s market cap is R9.5 billion! This is exactly why Super Group believes that the rest of its business is being undervalued by the market.
After settling debt and other costs, Super Group intends to declare a special distribution of R16.30 per share before the end of June 2025. The share price is R27.45, so a decent chunk of capital will be coming back to shareholders.
If there is some kind of improvement on either the logistics or automotive side, then they may well be right about the rest of the group being undervalued by the market. Special situation and value investors will be taking a close look here, especially as the anticipated net debt to EBITDA ratio in the group is expected to drop sharply from 2.96x to just 0.77x after the deal.
On a pro-forma basis, the net asset value (NAV) per share is expected to be R38.29 and HEPS from continuing operations would be 229.5 cents. Although Super Group is trading way below its NAV per share, looking at HEPS relative to the NAV explains why that is the case. They simply aren’t generating sufficient profits from the asset base.
If that improves, then you could see serious share price action here after the deal. Personally, I’m too bearish on the traditional automotive manufacturers to see sufficient room for improvement here. It’s certainly a stock that is worth keeping an eye on though!
For some reason, the market really liked the Vodacom update (JSE: VOD)
I wish I could tell you why
Vodacom closed 5.6% higher on a day when equity markets really struggled as investors digested the tariff news. That’s a major shift in momentum, although it’s well worth remembering that this is what the long-term chart looks like:
What has changed here that could’ve gotten the market excited?
Starting with South Africa, total revenue growth for the quarter ended December was 4.7% and service revenue growth was 3.2%. Although lack of load shedding would’ve probably done wonders for margins, that’s still below-inflation growth in revenue. Unless the Competition Tribunal changes its tune about the fibre deal with Maziv (part of Remgro), it’s unclear where a material acceleration in overall revenue will come from. Although there are obviously some faster-growing pockets of the business, my cellphone bill seems to go down each time I renew my contract, not up!
The next largest segment is International, where growth was just 1.9% as reported. On a normalised basis, it was 7.5%. I will remind you once more that normalising for forex movements and just pretending that they will one day stop being an issue is very dangerous. Just ask the likes of MTN and MultiChoice.
This brings me neatly to Egypt, where the forex issue is at its most obvious. Revenue fell by 7.5% on a reported basis, yet was up 54.9% on a normalised basis. That’s obviously a great growth rate on a constant currency basis, but my view on forex risk remains the same: reported numbers are what count.
The combination of deep capital expenditure and exposure to African currencies lead to me sitting this one out. Perhaps one day it will improve. For now, I struggle to build an appealing bull case here.
Nibbles:
Director dealings:
After putting a large hedge in place last week, Datatec (JSE: DTC) founder and CEO Jens Montanana features in this section once more. This time, he’s bought shares worth R79.6 million!
Acting through Titan Fincap Solutions, Christo Wiese has bought exchangeable bonds in Brait (JSE: BIHLEB) worth R1.9 million.
Two directors of a major subsidiary of Stefanutti Stocks (JSE: SSK) bought shares worth R475k.
Acting through an associate, a director of Huge Group (JSE: HUG) bought shares worth R42k.
ArcelorMittal’s (JSE: ACL) losses are slightly worse than they feared in the initial trading statement. Instead of an expected range of R4.06 to R4.41 for the headline loss for the year ended December 2024, they now expect a headline loss of R4.50 to R4.66 per share. Either way, it’s a terrible deterioration from the headline loss of R1.60 per share in the comparable period. You may recall that it was ArcelorMittal that kicked off the January jitters for South Africa with the news of substantial job losses related to the longs business.
If you would like to flick through an up-to-date presentation on the Southern Palladium (JSE: SDL) opportunity, you’ll find it here.
Having spent what I’m sure was a lot of money fighting the JSE in court, Trustco (JSE: TTO) has now run out of courts to complain to. Trustco’s application for leave to appeal the Supreme Court of Appeal’s judgement to the Constitutional Court was refused by the most important court in the land based on a lack of any reasonable prospects of success. This issue has therefore been brought to a close and all the egg has settled on Trustco’s face. It’s rather ironic to see Trustco renew its cautionary announcement on the same day regarding potential delistings from all markets that it is currently listed on. They have now engaged an independent expert in this regard. They are also still trying to get their financials for the year ended August 2024 finalised.
Conduit Capital (JSE: CND) has finalised the disposal of its shares and claims in estate agency group Century 21 for R7.2 million. It’s a rare example of good news for this battered and broken group.
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