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This is a clear sign that the group is focusing on its core strengths
Let’s start with the acquisition news, which gives you an idea of where Bidvest is focusing.
Bidvest has announced a small deal to acquire 100% of Citron Hygiene, a washroom hygiene products and services business operating in the US, Canada and UK. The company is headquartered in Canada. This type of business is obviously very familiar to Bidvest, so this is a classic example of a known model into underpenetrated markets, which is less risky than a new model in new markets.
It also helps that 90% of the revenue is recurring in nature, with a customer base across a range of sectors. This helps to further de-risk the deal.
There are many growth drivers for this business, with one of the more interesting ones highlighted by Bidvest being legislation around free vending of menstrual products in washrooms in North America. The total addressable market is very large, which gives Citron an appealing growth runway without them having to step beyond their core competencies.
The sellers include Birch Hill Equity Partners, so the company has already been under formal ownership in the private equity sector. This will be part of why Bidvest feels comfortable buying the company, as the pain of getting it exit-ready has already happened.
The transaction will be fully funded from the variable rate revolving credit facility. Although Bidvest hasn’t disclosed the value of the deal, they note that the group is moderately geared. In other words, this shouldn’t put any strain on the balance sheet, as you would expect from what is essentially a bolt-on acquisition.
The deal is subject to UK Competition and Markets Authority approval, which is expected within five months of submission.
We now move to the disposal news, with Bidvest deciding to step away from the financial services business. Strategically, this makes sense. The financial services business has never been a great strategic fit for Bidvest, so investors tend to get confused rather than excited by the opportunities that it brings. As a general rule, investors prefer groups that are more rather than less focused.
With banking and related products and services offered through Bidvest Bank and FinGlobal, along with short- and long-term insurance products through other Bidvest entities, this is a significant operation that has performed well in the post-pandemic environment. Although this may raise the question of why Bidvest is selling this division, it’s important to remember that the right time to sell a business is when the performance is good, not when the trajectory is negative.
The financial services business needs the right owner, as Bidvest is planning to deploy its capital elsewhere – like in the Citron deal. It’s no accident that the acquisition has been announced on the same day as the plan to dispose of the banking business.
Interestingly, Bidvest wants to hang onto the short-term insurance business, which will be transferred to the automotive division within Bidvest. The previously announced disposal of Bidvest Life is still underway. The change going forward is that Bidvest will actively seek a buyer for Bidvest Bank and FinGlobal, with the hope of an acquirer being identified before the end of 2024. Banking licences and operations are expensive to put together from scratch, so I doubt they will struggle to find a buyer.
For reference, Bidvest Bank has a loan book of R5 billion and deposits of R8 billion. Operating income in FY23 was R219 million, so this is a profitable enterprise that should attract a decent offer. It’s going to take a while to conclude a deal and go through all the regulatory processes, but the eventual unlock of capital from a disposal will certainly help with Bidvest’s growth ambitions in the remaining six divisions in the group.
The directors are considering a delisting
With a market cap of barely over R100 million, Brikor is one of the smaller companies on the JSE – but by no means the smallest. The trend of small caps leaving the market looks set to continue, with Brikor as the latest example of a company that is considering a delisting.
After the recent deal activity with Nikkel Trading, there’s not much point in Brikor remaining listed. The future of the company lies with Nikkel as the controlling and potentially sole shareholder if they go ahead with the delisting.
Although there is no guarantee of a transaction here, the board is seriously considering proposing a scheme of arrangement to repurchase the shares not held by Nikkel. This would take out the public shareholding and lead to a delisting. Shareholders have been advised to exercise caution until further announcements are made.
The group is looking to focus its activities on countries with an investment grade rating
Credit ratings make a difference to the level of activity in a country, as they directly impact the cost of capital. Serbia is only slightly below investment grade, but that seems to be enough for NEPI Rockcastle to want to exit the market. For comparative purposes, Poland is an investment grade jurisdiction and a major focus area for the fund.
The selling price is €177 million and the net proceeds will be used to fund NEPI Rockcastle’s pipeline of acquisitions and developments. Before getting their hands on the money, they will need to get through various approvals ranging from competition authorities through to bank funding for the purchaser.
If the deal goes through as planned, NEPI Rockcastle would have no further operations in Serbia.
The right thing to do would be share buybacks, but I won’t hold my breath
During 2023, Texton decided that instead of buying back its shares trading at a deep discount to NAV, it would be better to invest in a US-based real estate fund. This practically turns Texton into a fund-of-funds strategy in terms of offshore exposure. Although the returns on the investment have proven to be lucrative in rands, the point is that Texton’s investors aren’t invested in the company because they want exposure to a US real estate fund. They can get that exposure themselves. Texton should be executing direct property opportunities or giving the money back to shareholders in the form of buybacks.
Perhaps some of this thinking is filtering through, with Texton selling down a portion of the investment in Blackstone Real Estate Income Trust. They will recycle capital of R110 million in the process vs. an initial acquisition price of under R92 million. Together with distributions, they achieved a total return on the investment of 31.05%.
For sure that’s a great return, but the point is that listed property funds don’t exist just to invest in other offshore property funds. It could just as easily have been a poor return if the rand had behaved differently. Don’t make the mistake of confusing a lucrative investment outcome for a great capital allocation culture.
The decision they make with the proceeds will tell us a great deal, with Texton noting that they will be “recycled in line with the group’s offshore investment strategy” – and sadly, that doesn’t sound to me like share buybacks.
Weak domestic demand in China is a core issue
ArcelorMittal closed nearly 5% lower on Tuesday after releasing a business update and trading statement. The bad news was right at the bottom of the announcement, with the headline loss per share for the six months to June expected to be between R0.96 and R1.04 per share, which is significantly worse than the loss of R0.40 in the comparable period.
China’s domestic steel consumption is weak due to the ongoing property crisis in that country and generally weaker infrastructure demand. This means that Chinese steel exports are flooding international markets, putting pressure on prices. Although tariffs in some markets on Chinese steel may help with prices, this is a complex situation that is very difficult for a company like ArcelorMittal to deal with.
What would help tremendously is an uptick in South African domestic demand for steel, as South Africa’s primary steel exports increased 13% in the first quarter of 2024. This means our exports are competing internationally with Chinese exports, which makes a tough situation even worse.
In some good news at least, the Longs steel operations have been stable for the first half of the year. Given the overall worries around the future of that business, this is important. There are some green shoots here, including improved performance by Transnet. The trade unions remain a major stumbling block, though.
The Flats business didn’t have such luck due to instability in the blast furnace, with hopes to claw back the lost volumes in the second half of the year.
With the share price down 67% in the past 12 months, this is an interesting way to take a very risky position on what the GNU could mean for domestic demand.
And Ethos Capital shareholders approve the unbundling of Brait (JSE: EPE)
Brait has released the results of its extraordinary general meeting. This sounds very fancy, but it’s basically a meeting to vote on the resolutions for the recapitalisation of the company. This includes the rights offer as well as the necessary resolutions for the convertible bonds.
They received almost 100% approval from those at the meeting, but please don’t mistake that for thinking that the market loves what Brait is doing. On the contrary, this is just the lesser of two evils from a shareholder value destruction perspective.
The share price is down 44% this year.
Although not technically a related deal but certainly part of the broader story, Ethos Capital shareholders approved the resolutions for the unbundling of Brait shares. And as previously indicated, Ethos has also bought shares shares held by Black Hawk and taken on its debt for no consideration. Black Hawk is a structure linked to two directors who were basically given by debt guarantee by Ethos to help them subscribe for shares.
The Black Hawk Down jokes write themselves.
The SA gold and PGM operations will have a combined shared services structure going forward
Sibanye-Stillwater has been having a very tough time of things. The PGM prices simply aren’t playing ball, with the share price suffering as a result. To manage this prolonged downturn, the company has looked for every internal efficiency it can find, including in the gold operations.
The section 189 process for the SA gold and shared services functions has been concluded.
The Beatrix 1 shaft will be allowed to continue, provided there are no net losses on an average trailing three-month basis. If those losses happen, the shaft will be closed.
In the shared services side, the gold and PGM services will be combined into a single regional operational structure. The total number of forced retrenchments over the past 18 months in that regard is 966 employees out of a total of 11,500 potentially impacted employees.
This is important for Spear (and Emira) shareholders to read
If you are serious about learning about the markets (and of course you are, because here you are, reading Ghost Bites!) then I highly recommend taking the opportunity to read through circulars when they are released. You’ll learn so much. The latest example from Spear can be found here.
Spear is looking to acquire a large portfolio from Emira that is a genuine mover-of-the-dial for Spear. It will take the fund’s total assets from 29 to 40, with on ongoing bias towards the Cape Town Metropole. The value of the acquisition is R1.146 billion, which is a discount to the market value of R1.236 billion. The seller is paying transaction fees of R22.5 million.
Based on the price net of fees, the average initial annualised net operating income yield is 9.85%. Next time you want to put all your money into a residential buy-to-let opportunity, work out the yield and compare it to what Spear is paying here. Then ask yourself whether you are better off taking immense concentration risk in one property, or investing in REITs instead.
No prizes for guessing which route I like to take.
And finally, well done to Spear for pulling this deal off with total corporate costs of just R6 million, including only R600k in transaction advisor fees. Whilst I appreciate that property deals aren’t directly comparable to corporate M&A, there are management teams on the JSE that regularly get fleeced by investment bankers. They could learn a thing or two from Spear.
But I don’t see much point
Tongaat Hulett might not be disappearing from our market after all. Vision Investments will be subscribing in new shares in the company by exchanging a portion of the lender group claims for new shares.
This is likely to end in a mandatory offer by Vision to other shareholders though, so it’s quite possible that the listing ends up being terminated anyway. It’s just not a guarantee at this point that the listing will disappear, even though Vision will hold 97.3% after the subscription for shares.
Even if minority shareholders want to stick around for some reason, the JSE won’t be happy with such a low spread (the number of public shareholders). I don’t see how the Tongaat listing survives this.
The company has had to suspend production at the Grosvenor mine in Queensland
Mining really isn’t an easy industry, with Anglo American as just the latest example of how the risks play out in real life. There’s been an underground coal gas ignition incident at the Grosvenor steelmaking coal mine in Queensland, leading to an evacuation of the mine.
The procedures to assess the steps towards a safe reopening of the mine will take several months. This is the right call as safety is always the first priority in mining, but it’s obviously also a major financial setback.
For 2024 as a whole, Anglo’s total steelmaking business was due to produce 15 to 17 million tonnes. Grosvenor was expected to contribute 3.5 million tonnes of this. It looks as though they’ve already managed 2.3 million tonnes from Grosvenor this year, as they were expecting lower production from the asset in the second half anyway.
Goodness knows this could’ve been much worse, but it’s still an unhelpful addition to Anglo’s current challenges.
This is to appease the regulator
In March 2023, the Constitutional Court ruled against Clicks in the battle with the Independent Community Pharmacy Association and referred the matter to the Director General of the Department of Health.
Through a further process of engagement, Clicks suggested that its position could be regularised through the disposal of manufacturing pharmacy Unicorn Pharmaceuticals. The Department of Health has accepted this proposal and has noted that no further new pharmacy licences will be processed for Clicks until the sale has happened.
Clicks believes that the sale of Unicorn will be completed by the end of July 2024. There are no details around the disposal at this stage, but an opportunistic buyer might have gotten a great deal here. The negotiating power certainly doesn’t sit with Clicks in this situation, as they need to get the deal done as soon as possible.
The first step is to acquire a viable asset
Cilo Cybin has listed on the JSE as a special purpose acquisition company, or SPAC. This is like buying an unfurnished house. The structure is there but there’s nothing inside it – yet.
A SPAC listing is a useful way to get all the building blocks in place as part of attracting investors and lining up what is referred to as a “viable asset” – one that meets the necessary criteria to ensure that the SPAC is transformed into a normal listing within the required timeframe.
For Cilo Cybin, that viable asset is Cilo Cybin Pharmaceuticals. They are in negotiations to acquire that asset.
Separately, the company announced that resignation of HB Aucamp as financial director, to be replaced by Reshoketswe Ledwaba with effect from August 2024. Ledwaba has been the acting CFO since February 2024.
Orion is raising A$7.7 million – which works out to R92.3 million
Orion Minerals has received firm commitments for a placing to sophisticated and professional investors (i.e. this wasn’t an offering to the general public) worth A$7.7 million. This works out to around R92.3 million, so that’s a meaningful capital raise.
The funds will be used for the Prieska Copper Zinc Mine, as well as infrastructure development at Okiep Copper and drilling at Okiep.
There’s also a rather interesting structure called a Share Purchase Plan that allows eligible shareholders to subscribe for shares in parcels starting from R2,000 up to R365,000 at an issue price of R0.18 per share. They will raise around R60 million in this way.
Orion has found a clever way to include not just institutional investors, but retail investors as well through the Share Purchase Plan. Junior mining is all about having enough money to take an asset to full production, so these capital raising activities are critical.
The year-on-year moves aren’t meaningful here
Castleview Property Fund has been through a major restructuring process, so comparing this year to the prior year (which also happened to be a 13-month period) isn’t helpful. It makes more sense to just view the current year in isolation.
For the year to March 2024, the total distribution per share was 52.823 cents. At R8.50 per share as the current traded price, this puts it on a trailing yield of 6.2%. The net asset value (NAV) per share is R8.70, so the fund is trading close to its NAV. Sadly, “trading” is a relative term here, as there’s no liquidity in this thing due to its shareholding structure.
The loan-to-value ratio net of cash is 48.9%, which is on the high side by property fund standards.
Over two years, there’s still a headline loss in total
Crookes Brothers released results for the year ended March 2024. They show a remarkable change in fortunes, with a headline profit of R51 million vs. a headline loss of R108 million in the prior period. Where there was no dividend in the prior year, there’s now a dividend of R2 per share.
In primary agriculture, volatility is guaranteed. There are just so many variables at play, as anyone with farming experience will tell you. Crookes was on the right side of several changes in operating conditions this year, including a reduction in input costs and better prices for the sugar cane and banana operations. The deciduous fruit business was sold and the proceeds were used to settle debt.
Aside from the deciduous business as a discontinued operation, revenue was up 18%. To supplement this, there was a positive fair value move in the biological assets thanks to improved conditions. There were strong revenue contributions from sugar cane and bananas, up 28% and 25% respectively. The pressure was felt in the macadamias business, where revenue fell 62% due to low global prices and disappointing production yields.
Sugar cane reported operating profit of R205 million, so that’s the most important division. Bananas contributed R16.4 million. Losses in the macadamia division were R38.4 million.
Crookes also has a property business in KZN which reported a loss of R8.8 million. There really is some random stuff in here, like Crocworld (I’m not kidding) which reported an operating loss of R2.7 million.
Back to the important stuff, cash from operations of R206.9 million was a vast improvement vs. negative operating cash flow of R12.5 million in the comparable period.
This pre-close update doesn’t give any earnings guidance
Grindrod has released a pre-close update dealing with the five months to May. It includes some interesting data points, but doesn’t give any real guidance on earnings performance.
For example, they note pressure on cargo flows for customers and the challenges of the cyclonic event in Mozambique, yet the Port of Maputo achieved record volumes (up 17%). Conversely, Grindrod’s drybulk terminals in Mozambique suffered a 6% drop in volumes.
In South Africa, Grindrod’s volumes were up 27% in terms of tonnes handled. As a reminder, the company has been appointed as preferred bidder to develop and operate a container handling facility at the port of Richards Bay.
On the rail side, the structural reorganisation of the business is mostly complete and they have a fleet of 13 locomotives that have been freed up after mutual termination of the iron ore rail operation with the customer in Sierra Leone.
Other tidbits in the announcement include a note that trading performance in the marine fuel trading business was impacted by oil prices. They are also working to recover advances related to the KZN properties, which have been a headache for investors for a long time.
Net debt is up from R101 million in December 2023 to R455 million as at the end of May. The net debt / equity ratio is up to 4.5%.
This is thanks to a decrease in expenses
Marshall Monteagle has investments across various sectors, with recent disposals including a property in the US and a tool and machinery trading business in South Africa. They also hold listed equity investments, so this is far more like a family office and less like a typical listed company.
For the year ended March 2024, revenue fell by 13%. With expenses coming in significantly lower though, they swung from a loss of $1.8 million to a profit of $2.3 million.
The final dividend of 1.9 US cents is flat vs. the prior year.
The metals business is the real highlight here
Nampak closed 8% higher on Friday after releasing results for the six months to March. The big swing in continuing operations would’ve been the driver of that move, with revenue up 7% and EBITDA up a whopping 201%. They generated HEPS from continuing operations of R53.94 vs. a massive headline loss in the comparable period.
Even with discontinued operations included, they managed headline earnings of R267 million vs. a headline loss of R342 million in the comparable period. The loss from discontinued operations of R530 million was far less severe than in the comparable period.
In the metals business, they are calling this performance a “step-change” and that’s a term that corporates use sparingly. With operating margin up from 5.2% to 12.3% in this business, it seems warranted.
DivFood was another area of major improvement, swinging from a loss into an operating profit of R186 million despite a slight decrease in revenue. Successful turnarounds are generally driven by cost efficiencies rather than top-line growth and this seems to be no different.
In a separate announcement, Nampak obtained shareholder approval for the disposals of the liquid cartons business in South Africa, Nampak Zambia, Nampak Malawi and Bevcan Nigeria. Nampak is tracking ahead of internal timeframes for the broader asset disposal plan to fix the balance sheet, so the market would’ve loved that news as well.
There’s no dividend of course, as they aren’t out of the woods yet with the turnaround.
For such a small company, they put a lot of effort into their annual report
Insurance and furniture retail group Nictus released results for the year ended March 2024. Although group revenue was down 5.1%, HEPS was up by a substantial 67.4% to 20.46 cents. The share price is 80 cents and this is one of the smallest companies on the JSE, so you would expect to see a low earnings multiple.
The dividend increased by 20% to 6 cents per share.
The insurance business made all the money here, with a profit of R6.4 million after tax. The furniture retail business lost R389k. The head office segment is a profit centre in this group, with profit of R4.5 million. It really is a tiny company by listed standards, with consolidated profit for the year of under R11 million.
A post-pandemic normalisation had to come at some point
PBT’s financial reporting is really good. They go to great lengths to include interesting charts and plenty of information about the underlying business. One of the stats that stood out for me is the five-year revenue compound annual growth rate (CAGR) of 13% vs. the EBITDA CAGR of 22%. They’ve achieved significant margin expansion over the period, assisted greatly by the pandemic and demand from clients for data and cloud-related services. At some point, everything needed to take a breather here as corporates rationalised their spend.
This is why revenue is up just 3% in the latest period and gross profit margin has contracted, as client budget constraints became a problem. This led to EBITDA declining by 5.4%, driving a drop of 10.2% in normalised HEPS.
Despite this, cash generated from operations was 4.3% higher and the total dividend for the year ended March 2024 was up 3.4%.
PBT Group will be presenting on Unlock the Stock on Thursday, 4th July. To pose questions to the management team, you need to register to attend the online event. You can do so at this link.
Leasing activity in South Africa looks encouraging for Resilient
Although these are separately listed companies, Resilient has a 30.4% stake in Lighthouse and the two funds are invested alongside each other in certain properties in Spain and France, so the performance in those portfolios is applicable to both companies.
Before we get into the specifics, Resilient’s guidance for the full-year dividend is 410 to 420 cents per share. Based on the current share price, this is a forward dividend yield of 8.9%.
Lighthouse has guided for EUR 2.40 to 2.50 cents per share in distributions this year and hopes to be at the upper end of that guidance. Based on the current exchange rate, Lighthouse is on a forward yield of roughly 6%.
Resilient’s portfolio
In Resilient’s South African portfolio, leasing activity for the interim period has been strong. Rentals on new leases came in 36.3% higher than outgoing leases and they have strong annual escalations as well. Overall vacancies are down to 2.1%. It’s worth noting that solar energy currently provides 27.7% of Resilient’s total energy consumption, with an expectation for this to increase to 35% by the end of the year.
The Nigerian portfolio is being sold to Shoprite, with competition commission approval in South Africa and Nigeria having been achieved in May. These operations will be reported on a deconsolidated basis in the interim period.
Joint investments in Spain and France
In Spain, comparable sales growth was 7.3% for the four months ended April.
In France, comparable sales fell 4% for the four months to April based on political worries in the country. But despite this, net operating income is expected to be 8% to 10% higher thanks to vacancies being filled. Even then, the vacancy rate of 7.5% has more room for improvement.
Lighthouse-specific investments
During the four months to April, comparable sales across the Lighthouse portfolio (including the above assets) increased by 3%. The Iberian portfolio is 66% of Lighthouse’s property portfolio and is performing well, with sales growth well above the inflation rate in the region.
In Slovenia, comparable sales for the four months to April increased by just 1%.
Based on that strong performance in Iberia, it’s worth highlighting some additional details in the announcement on recent acquisitions in Spain, which were concluded at net initial yields of 7.5% and 7.7%. These deals were funded by the disposal of Hammerson shares. Still, Lighthouse’s loan-to-value ratio has increased from 14% to 20.3% as at the end of April 2024. This isn’t slowing them down, as there’s another deal underway to acquire a mall in Iberia.
After the disposals of Hammerson, Lighthouse’s stake has decreased from 16.3% to 7.0%.
It helps that Indluplace is performing ahead of the acquisition expectations
SA Corporate Real Estate released a pre-close presentation for the six months to June. It goes into great detail on the portfolio, with the key takeout for me being that the industrial portfolio is still delivering the best performance.
For the six months, net property income is up 6.7% in the industrial portfolio vs. 3.0% in retail and 3.2% in Afhco. At recently-acquired Indluplace, they are running 2% ahead of the acquisition model.
In the retail portfolio, Pick n Pay contributes 2.3% of total portfolio revenue. They are actively managing the situation, including downsizing of hypermarkets.
Reversions are only marginally positive for the retail and industrial portfolios, with tenants clearly negotiating hard. In the residential portfolio, rental increases are better as one would expect.
With a loan-to-value ratio at the end of May of 42.6%, this balance sheet is running a little hot. They are working on a significant pipeline of asset disposals and they are raising equity capital for the unlisted residential fund, which will take some pressure off.
The fund expects distributions to be 6% higher for the interim period and between 5% and 7% higher for the full year.
A global 2023 Credit Karma study revealed that 33% of Gen Zs and 31% of millennials have ended relationships over financial disagreements. Additionally, 56% of Gen Zs and 61% of millennials report frequent money-related arguments in romantic relationships. Duma Mxenge, Head of Business and Market Development at Satrix, says open communication and financial alignment are essential for couples to navigate financial hurdles and invest towards their future together.
Mxenge says couples should discuss their investment goals and risk tolerances to ensure they achieve their financial objectives, whether married, living together, or planning a future together.
“Communication is critical in any relationship, especially regarding financial matters. So, when investing as a couple, partners should discuss their financial goals, values, and risk tolerance early in the relationship. Having these conversations sooner rather than later can help avoid future issues and help couples establish financial harmony.”
One of the first steps to achieving financial harmony, according to Mxenge, is defining your goals based on your relationship’s life stage.
“If you don’t have kids, then your individual values will likely drive your investment decisions, like one partner prioritising travel while the other values furthering their education. It’s about finding alignment with each other’s top priorities. However, once kids enter the picture, the conversation shifts to how the couple envisions raising the children and what school they want to take them to, for example. Creating a financial legacy also becomes paramount.”
He says regardless of the couple’s profile, partners should discuss their top financial values and priorities and find a middle ground.
Mxenge believes the idea of one partner taking on more investment risk while the other is more conservative has to do with the age difference between partners rather than individual risk appetites.
“If your partner is much younger than you, they can afford to take more risks because of their longer investment horizon. The older partner may need to be more conservative as they near retirement. For example, if I were 10 years older than my partner, I would encourage them to invest more in equities and take more risk because they’ve got time to reap the benefits of compounding. As the older partner, I would adopt a conservative strategy, because I’m trying to preserve the capital I’ve grown over the years.”
He adds that when it comes to joint investment accounts, the level of risk should align with the couple’s specific financial goal and time horizon. “For a short-term goal, it’s prudent to invest conservatively. But for a goal five to 10 years out, the couple can afford to take on more risk in hopes of higher returns.”
So, while a balanced approach between partners can work, it should be based more on where everyone is in their investment journey and stage of life.
Mxenge says couples with mismatched investment goals and risk tolerances should have proactive and intentional financial discussions, and even ‘financial therapy’ with an objective third party can help.
“It’s common for couples to have different money personalities. One may be a prudent saver, and the other more of a spender. However, if not managed, this mismatch can lead to major conflict. ‘Financial therapy’ with an objective third-party professional can help couples work through these differences and find a middle ground.”
Since money issues are a leading cause of separation, Mxenge says this form of mediation can be a relationship-saver. “Financial therapy is incredibly beneficial. I think every couple should do it. It’s where the couple speaks with a financial adviser well-versed in coaching to deal with the psychological and emotional side of financial planning and money. A financial therapist can help you work through mismatches in your financial habits, beliefs, and behaviours in a productive way. They have the expertise to guide these delicate discussions.”
In addition to therapy, Mxenge recommends that couples attend financial seminars together and then discuss applying the learnings to their situation.
While maintaining some financial independence is healthy, Mxenge says couples need to view their relationship as a partnership and work to co-create an overarching vision for their financial future together.
He says for joint goals, like buying a house together, couples should be clear on the budget, the timelines, and each partner’s contribution. Having open discussions and regularly meeting with a financial adviser to review the household balance sheet can provide a helpful big-picture view and keep both partners engaged and aligned.
Mxenge concludes, “Couples should understand each other’s collective and personal goals, like funding a degree or starting a business. Openly discuss these individual and shared aspirations and how you can support each other. With transparent communication, a willingness to compromise, and some expert guidance, couples can thrive and grow together on their investment journey. The couple that invests together can harness the power of two in their investment strategy and set themselves up for long-term financial and relationship success and security.”
Disclaimer
Satrix is a division of Sanlam Investment Management
Satrix Investments (Pty) Ltd is an approved FSP in terms of the Financial Advisory and Intermediary Services Act (FAIS). The information does not constitute advice as contemplated in FAIS. Use or rely on this information at your own risk. Consult your Financial Adviser before making an investment decision.
Satrix Managers (RF) (Pty) Ltd (Satrix) is a registered and approved Manager in Collective Investment Schemes in Securities.
While every effort has been made to ensure the reasonableness and accuracy of the information contained in this document (“the information”), the FSPs, their shareholders, subsidiaries, clients, agents, officers and employees do not make any representations or warranties regarding the accuracy or suitability of the information and shall not be held responsible and disclaim all liability for any loss, liability and damage whatsoever suffered as a result of or which may be attributable, directly or indirectly, to any use of or reliance upon the information.
Cocoa prices hit an all-time high in March, breaking the $10,000 per ton mark due to disease outbreaks and destructive weather in West Africa. By the end of the first quarter, cocoa futures in New York reached $10,080, doubling in price this year because of fears about a shortage of cocoa beans. Chocolate lovers the world over are quaking in their boots as I write, but fortunately this tale has turned happy again, as the weather in Ghana has improved. Happy for chocolate consumers, that is. Not so much for those who fancied a punt. Cocoa futures have been falling since the clouds gathered, bringing on the longest run of losses since 2022
Ghana, Côte d’Ivoire, Nigeria, and Cameroon produce over 75% of the world’s cocoa but have faced severely reduced crop yields due to droughts, fires, and other climate change-related issues. According to Gro Intelligence, the current drought in West Africa is the worst since at least 2003. Now, if we were able to cultivate cocoa beans en masse on every continent in the world, we’d certainly see less volatility in cocoa prices. But when disaster strikes the very region that produces the majority of the world’s supply of something, it triggers a global shortage.
And when supply is low, prices go high. We’ve seen this movie before.
These days, if you want to paint your kitchen, all you have to do is walk into your nearest hardware store and select the colour of your choice (as long as that colour isn’t Vantablack). The pigments in the paint you buy are almost guaranteed to be the synthetic variety, created in factories according to scientific formulas that read like recipes. As you can imagine, this is a far cry from how things worked when human beings first started painting things.
In the beginning, we created all of our pigments from things we found around us in nature. Reds, yellows and browns were the easiest and therefore the first, derived from the clays and soils under our feet. Minerals like copper malachite gave us green, burnt wood and ivory gave us black, and lime, calcite and later toxic lead produced white.
It was a simple formula but it worked relatively well: if a piece of burnt twig appeared black, it would leave a black mark when applied. This strategy worked well for almost every colour except the most elusive – blue.
The problem with blue is that we could see it around us in nature but we couldn’t hold it or apply it. The sky is blue, and so is water, but neither atmosphere nor water produce a blue pigment. To capture this evasive colour, we shifted our strategy from foraging to scientific experimentation.
The world’s first synthetic pigment, Egyptian Blue, was created more than 5,000 years ago. While evidence of its use has survived the ravages of time in the form of paintings on tomb walls, the original recipe for Egyptian blue was lost centuries ago. Fortunately, modern chemists were able to recreate the process and uncover how the Egyptians managed to capture the sky by combining limestone, sand and copper malachite over heat.
Yet Egyptian blue was just a precursor to the world’s most coveted blue, which would soon follow.
Derived from the lapis lazuli stone, the ultramarine pigment was once considered beyond precious. Even its name alluded to its exotic origins, translating directly to “beyond the sea”. For centuries, the only source of this vibrant blue was lapis lazuli mined from a remote, arid strip of mountains in northern Afghanistan.
While the stone itself wasn’t considered rare, the method for extracting the pigment from it was a meticulous and laborious process. First, the stone was ground by hand into a fine powder, then mixed with melted wax, oils, and pine resin. This mixture was then kneaded in a diluted lye solution to produce the rich, deep blue hue. All of this effort, combined with the logistic feat of transporting the mined stones from Afghanistan to Europe (remember, these were the days before Amazon’s delivery drones), resulted in a premium price tag for Renaissance painters. It is estimated that the cost of ultramarine pigment was roughly ten times that of the stone it derived from, and in times of high demand, more than gold.
Due to its exorbitant cost, ultramarine was typically reserved for depicting the clothing of Christ or the Virgin Mary in religious artwork, or for painting royal portraits (ever wondered where the term “royal blue” came from?). Most European painters relied on their wealthy patrons to underwrite the purchase of this luxury pigment. For the patrons, a painting that contained even a glaze of ultramarine blue was a testament to their wealth and success, which is why those who could afford it insisted on its use.
Some artists, like Vermeer, had no problem miring their entire family in generational debt as they took out loans to be able to afford the coveted blue. In one of his most famous paintings, “Girl with the Pearl Earring”, the blue headband around the girl’s head looks like it was painted in ultramarine, but was actually created by applying a thin glaze of ultramarine over a white underpainting. This allowed Vermeer to bring the blue into his painting in the thriftiest way possible, by diluting the smallest scrape of the true pigment into a carrier oil to create the glaze.
Others, like Michelangelo, had to leave paintings unfinished when they ran out of ultramarine. His painting, “The Entombment”, features a distinct unfinished corner where a weeping Virgin Mary is meant to be found, wearing her cloak of blue. Refusing to substitute any other shade of blue for the Holy Virgin’s cloak, Michelangelo opted instead to abandon the painting entirely.
Not all artists were this committed, however. Those who saw a gap to profit from dishonesty would claim to use ultramarine but substitute it with cheaper pigments like smalt or indigo, keeping the profit difference for themselves. Such deceit was a risky business, as getting caught could irreparably damage an artist’s reputation, but the price difference between indigo and ultramarine was more than significant enough to justify the gamble.
In 1824, the Société d’Encouragement, a French scientific society, posed an intriguing challenge: to create a synthetic alternative to ultramarine. The reward? The sum of six thousand francs – a considerable incentive for any chemist or researcher.
Prompted by this enticing offer, two contenders stepped forward, each vying for the prize. First was Jean-Baptiste Guimet, a French chemist with a keen interest in colour chemistry. The second was Christian Gmelin, a German professor hailing from the University of Tübingen.
Their approaches diverged, yet their timing was eerily synchronised. Within mere weeks of each other, both Guimet and Gmelin presented their artificial solutions. Gmelin, ever the cautious scientist, asserted that he had cracked the code a year earlier but had deliberately withheld publication. Guimet, not to be outdone, countered by claiming that he had conceived his formula two years prior but had similarly refrained from publicising it.
The scientific community buzzed with anticipation as the committee deliberated. Ultimately, the decision fell in favour of Guimet. His synthetic blue pigment triumphed, earning him the coveted reward. However, this outcome did not sit well with the German gentry, who had rooted for Gmelin. Consequently, the artificial blue became immortalised as “French ultramarine”.
Like most artists these days, I only use synthetic pigments in my paintings. Yet I often pause to consider the fresh dab of ultramarine as I apply it to my palette. Thanks to the wonder of science, my tube of ultramarine paint costs exactly the same as any other shade of blue. What would Vermeer, Michelangelo or any of their contemporaries think if they saw me apply this precious colour as freely as any other on my palette?
Where there is no longer scarcity, there is no need to differentiate ultramarine from its fellow pigments by price. As such, the pigment has long lost its association with wealth. If I were to select an ultramarine jersey from a shop shelf today, it would be because the colour appeals to me, not because I am trying to communicate that my family is royally wealthy.
As a student of art history, I cannot help but smile at the irony that perhaps the most common use of ultramarine in clothing these days is in the blue overalls worn by manual labourers. From royal blue to blue collar, ultramarine has trickled its way down from the robes of kings to the vestments of the working class. And often, these workers are busy extracting something that we believe to be rare today.
As the colour blue has shown us, rarity can change. Lab-grown diamonds, anyone?
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.
Dominique can be reached on LinkedIn here.
Growth in earnings is far more modest than the growth in dividends
Argent Industrial has released results for the year ended March. They reflect revenue growth of 3.5% and EBITDA growth of 9.6%, which sounds like the start of a great story at HEPS level. Alas, HEPS was only up by 6.6%, so there was pressure below the EBITDA line. One of the major drivers was the increase in the UK’s corporate tax rate, driving a significantly higher effective tax rate at Argent and thus stunting post-tax growth vs. pre-tax growth.
Before we get to that, here’s another example on the local market of a dividend payout ratio moving higher. The dividends per share increased by 21.1% to 115 cents vs. HEPS only being 6.6% higher at 438.5 cents. When you have a modest payout ratio, you can do these things.
The HEPS story at Argent over the past two years has been most impressive. Despite revenue only increasing by 4.6% in total from 2022 to 2024, HEPS has jumped 29.3%!
The segmental report reveals that the magic is happening outside of South Africa. Profit before tax only increased by 2% in South Africa in this financial year, whereas the other regions saw profits increase by 27.8%. Argent is focusing its investment activities outside of South Africa, so read it in that context, but it’s still a stark difference.
An accounting provision in the UK has blunted the performance
FirstRand has released a voluntary trading statement for the year ending June 2024. It’s not as detailed as what we’ve seen from a couple of the other banks, with much of the focus on a particular provision in the UK that has hurt the earnings this year.
The overall theme is that earnings growth from core operations has been stronger than the guidance provided in February 2024, driven by a better-than-expected performance particularly in the UK. Non-interest revenue has always been a highlight in the FirstRand group (RMB is a powerful business) and this period was no different, setting FirstRand apart from some competitors who are struggling with this line of revenue.
Another important highlight is that the credit loss ratio is expected to be closer to the bottom end of the through-the-cycle range, despite impairments being higher than expected in some retail portfolios. The relative outperformance in the UK shines through here, with a surprising reference to reduced cost-of-living pressures. That definitely wasn’t the story that I got from people on my recent trip there, but I’m not going to argue with the bank’s data based on my anecdotal discussions.
Expense growth is mid-single digits, which is again a better performance than we are seeing at competitors at the moment.
Sadly, the need to raise an accounting provision for the UK motor commissions review process has blunted almost all of this good news. The risk lies in the MotoNovo book, with the UK’s Financial Conduct Authority reviewing the historical use of commission arrangements and sales across the industry. This has led to firms in the UK raising provisions, with FirstRand taking a conservative approach is the size of its provision. It’s better to be positively surprised down the line rather than negatively surprised.
HEPS is only expected to increase by between 1% and 5% for the period. This is no reflection of the growth in the core business.
On the plus side, there are positive signs in the office property market
Growthpoint released an update for the nine months to March 2024. The group is focused on improving the quality of the South African portfolio and “optimising” the international investments, with references made to possible interest received around Capital and Regional. It sounds like Growthpoint is looking to simplify the group with a tilt towards the local portfolio and the growth opportunities it offers, particularly in landmark assets like the V&A Waterfront.
The good news is that vacancies are down in the retail portfolio (4.8%) and especially the office portfolio (15.6%), with the industrial portfolio ticking higher and now showing the same vacancy rate as retail. They are still experiencing negative reversions across the board though, with Growthpoint’s extensive portfolio including both diamonds and dogs.
In the retail portfolio, the group notes that Pick n Pay grocery stores (i.e. not liquor or clothing) occupy 9.4% of total retail gross lettable area. This is Growthpoint’s fourth largest tenant. There are examples of Pick n Pay either vacating or downsizing a few sites within the portfolio. Although it doesn’t seem like reason to panic at the moment, it’s good of Growthpoint to note this risk.
In the office portfolio, call centres are starting to look to Gauteng for opportunities as the Cape Town office vacancy rate is low. This is good news for the oversupply of office property in that province. Although there is more interest in office properties in general in the market, vacancies are expected to move higher to 16% for FY24 based on tenants that are moving out soon.
In the logistics portfolio, it’s not surprising to read that Growthpoint wants to increase its Western Cape exposure. The growth in the province is obvious to anyone who spends time here.
Speaking of Cape Town, the V&A Waterfront increased EBIT by 11% thanks to a 23% increase in international air passengers into Cape Town. Retail sales and visitor numbers were up 17% and 11% respectively. The vacancy rate for the precinct is negligible. This is the very best property in South Africa and Growthpoint knows it, which is why they are investing heavily.
Overall, Growthpoint has a large portfolio rather than a focused portfolio and this gives it exposure to broader macroeconomic trends rather than regional trends. Along with higher interest rates, this is why the guidance of a 10% to 12% drop in distributable income per share for FY24 has been affirmed.
Here’s another company that suffered from the pre-election slowdown in South Africa
We’ve seen it at the banks and the cement companies. Now we’ve seen it in Hudaco, the industrials and consumer durable products group. Before the election, South Africans scratched their heads at the abundance of electricity and didn’t trust it for a second. That’s not good for business.
Speaking of load shedding, the battery and energy businesses at Hudaco obviously took a serious knock thanks to Eskom’s newfound talents. CADAC also delivered poor results for the first half of the year. Overall, revenue for the six months to May fell 6.3% and HEPS was down 15.3%.
Despite this, the dividend is flat for the period. This is a good example of how a modest payout ratio leads to flexibility. HEPS came in at 785 cents and the interim dividend at 325 cents, which is how they managed to maintain the dividend despite the knock to HEPS.
The cash picture was strong, with cash from operations at R573 million vs. operating profit of R414 million. This is because the group released working capital, which simply means that there was less tied up in inventory and debtors by the end of this period vs. six months ago.
As you might have guessed by now, the consumer-related products segment is where the difficulties lie. This accounts for 43% of operating profit. Sales were down 15.7% and operating profit tanked by 36%. If you exclude the battery and energy businesses and CADAC, the drop in profit was 5%. There were a number of underlying reasons for this, some of which are quite structural in nature e.g port delays.
The engineering consumables division saw sales increase 4% and operating profit rise by 20%. The relative performance of the two divisions is quite something to behold.
Hudaco has made the surprising comment that the H1 deficit could be recouped in H2. They’ve made significant management changes at divisional level to try achieve this, with another major factor being the inclusion of Bridgit Fire and Plasti-Weld in full for the second half of the year.
Despite this, the share price is up 16.6% over the past year, with a strong recent rally as part of the GNU sentiment.
This delivers a solution for commercialisation of the products
Life Healthcare has entered into a contract with Lantheus Holdings, a NASDAQ-listed company, regarding the development and commercialisation of the RM2 products. This is an early-stage novel radiotherapeutic and radio diagnostic product, held in wholly-owned subsidiary Life Molecular Imaging.
Lantheus will pay $35 million up-front to Life and there will be ongoing payments based on development and regulatory milestones as well as royalties when the product is commercialised. This takes a lot of the development strain and risk off of Life Healthcare.
It also reduces the funding requirements for Life Molecular Imaging, which means a portion of the R1 billion retained from the disposal of the interests in Alliance Medical Group can be considered for a dividend to shareholders.
The market isn’t terribly interested in the increase in LNG production
In Renergen’s quarterly update for the first three months of the 2025 financial year, the company noted that LNG production increased from 154 tons to 1344 tons. It hardly matters to be honest, as that means just under R11 million in receipts from customers. Just the production costs are R10.7 million and that’s before we dig into staff costs (R8.8 million) and administration and corporate costs (R38.7 million).
In other words, very few people care about the LNG. They care about the helium. The helium system integration is in “finalisation” with the OEM focused on “system and operational enhancements” – so they are surely right on the cusp of pressing the big red button. Or whatever colour it may be.
Jokes aside, Renergen needs the performance test to (1) take place and (2) be successful. The group only has R60.5 million in cash on the balance sheet and plenty of debt.
There isn’t a huge amount of value beyond Atterbury, though
RMB Holdings is essentially a legacy structure that finds itself in the value unlock phase. These things are always easier said than done, which is why the share price is 41 cents and the net asset value per share is 76.7 cents. The market understands that value unlocks don’t happen overnight.
Atterbury contributes 85% of the group’s value. The loan-to-value ratio in that portfolio is high by REIT standards at 60.8%, but you need to remember that this isn’t a REIT. Atterbury isn’t forced to distribute its income each year. The underlying fair value of the properties increased in the six months to March 2024, with trading densities in the retail properties moving higher in all but one example.
Integer Properties has a far less appealing story to tell. Integer 1 and Integer 2 have been written down to zero. Integer 3 includes some decent properties, but isn’t without its issues. A residential unit estate in Northriding has been valued at a level below the expected final total cost, so there’s a perfect example of a developer actually making a loss on a property. Residential property is no joke, especially in Gauteng.
The economic backdrop isn’t conducive to lucrative prices for properties. This is a seller’s market and that doesn’t do anything to accelerate the value unlock at RMB Holdings.
Exchange-Listed Companies
Spear REIT is to dispose of the property situated at 100 Fairway Close, Parow Golf Course, Cape Town to The City of Cape Town for R160 million. The proceeds will be used to reduce the company’s loan to value ratio. The disposal is a category 2 transaction and so does not require shareholder approval.
Insimbi Industrial, via its wholly owned subsidiaries, has disposed of two properties: Amalgamated Metals Recycling SA to Booysens Buy Back Centre and the sale of Amalgamated Metals Recycling West Rand to West Rand Buy Back Centre for R5,66 million and R24,34 million respectively.
Metier Mixed Concrete, a wholly owned subsidiary of Sephaku, has concluded an agreement to acquire, on a voetstoots basis, the property situated at 39 Vulcan Place, Phoenix Industrial Park, Phoenix in KZN for a cash consideration of R21 million. Metier installed its first, and busiest, plant on the property in 2007. The lease expires in early 2025 with no option to renew the lease as the intention is to sell the property. The purchase of the property is seen as the most cost-effective and least disruptive course of action for the company.
Jubilee Metals has concluded two copper resource transactions which will support the expansion of Jubilee’s Sable refinery. The purchase consideration of US$3,85 million for acquisitions, named Project M and Project G, will be settled by a combination of cash ($0,25 million) and the issue of shares.
Unlisted Companies
In its second Nigerian acquisition HOSTAFRICA, SA’s Cloud Server solutions company, has acquired web design agency Naijawebhost. In 2021, the Cape-based firm acquired DomainKing. The move expands the company’s footprint in key African markets. Financial terms of the deal were undisclosed.
Africa’s largest mezzanine fund manager, Vantage Capital, has provided US$47,5 million of mezzanine funding for Two Rivers International & Innovation Centre, a services-oriented business park in Nairobi, Kenya.
DealMakers is SA’s M&A publication.
www.dealmakerssouthafrica.com
EPE Capital Partners has released further information on the unbundling of its stake in Brait to shareholders. The capital distribution in specie of 129,117,454 Brait shares will result in Ethos Capital shareholders receiving 0.50857 Brait ordinary shares for every one Ethos Capital A ordinary share, with each Brait ordinary share equating to c. R0.48 per Ethos Capital share.
Ibex Investment (formerly Steinhoff Investment) has completed a R9 billion accelerated bookbuild offering of 500 million Pepkor shares, representing c.13.6% of Pepkor’s current issued share capital. The shares were placed at a price of R18.00 per share, representing a 7.7% discount to the pre-launch price on 24 June. The company’s stake in Pepkor has reduced to c.30.2% and the free float of Pepkor increased to 69.8%.
In terms of the results of its offer to odd-lot shareholders, Putprop has repurchased 4,048 shares representing 0.01% of the total issued share capital of the company. The shares, which will be cancelled and delisted, were repurchased from 362 odd-lot holders for a total consideration of R13,24 million.
As part of the restructuring of its existing debt, Kibo Energy plc will raise £350,00 by way of placing 4,17 billion new ordinary shares of 0.0084 pence. The placing will be settled in two tranches of 1,78 billion shares and the second of 2,38 billion shares only once Kibo shareholder approval has been granted for an increase in the authorised share capital of the company. The entire placing has been raised through a single investor.
The announcement by RCL Foods of its intention to unbundle poultry producer Rainbow Chicken to its shareholders by way of a distribution in specie saw the listing of the company on the JSE Main board this week under the sub-sector Farming Fishing Ranching & Plantations. Rainbow listed on 26 June with 890 million shares and a market capitalisation of R3,25 billion.
Cilo Cybin listed on the AltX Board this week with a market capitalisation of R71 million, representing the first Cannabis SPAC to list on the JSE. Cilo Cybin Pharmaceutical has obtained both medical cannabis cultivation and manufacturing licenses, producing and supplying medical cannabis products to local and international markets.
A number of companies announced the repurchase of shares:
Insimbi Industrial will repurchase R43,1 million shares, funded from its available cash resources. A total of 21,065,200 shares were repurchased from Crimson Clover shareholders and 21,985,200 shares from Casterly Rock shareholders for R1.00 per share. An independent expert has been appointed and a circular will be distributed.
Capital Appreciation has repurchased 46,885,950 shares for an aggregate R56,84 million, funded from available internal cash resources. The shares were repurchased between 26 September 2023 and 13 June 2024 and represent 3.6% of the company’s issued share capital at the time of the General Authority.
Sanlam has repurchased 85,762,051 treasury shares held by its subsidiary SU BEE Investments SPV at a purchase price of R72.97 per share for an aggregate R6,3 billion. The shares represent 3.89% of the issued share capital of the company prior to cancellation.
In terms of its US$5 million general share repurchase programme announced in March 2024, Tharisa has repurchased 12,180 ordinary shares on the JSE at an average price of R18.61 per share and 14,743 ordinary shares on the LSE at an average price of 78.59 pence. The shares were repurchased during the period June 17 – 21, 2024.
Trustco repurchased 120,500,490 of its shares representing 12.8% of the total issued shares in the company from the University of Notre Dame du Lac. The shares will be cancelled.
In line with its share buyback programme announced in March, British American Tobacco this week repurchased a further 603,233 shares at an average price of £24.97 per share for an aggregate £15,1 million.
Prosus and Naspers continued with their open-ended share repurchase programmes. During the period 17 – 21 June 2024, a further 3,436,136 Prosus shares were repurchased for an aggregate €117,7 million and a further 254,193 Naspers shares for a total consideration of R948,3 million.
Three companies issued profit warnings this week: PBT Group, Absa Group and Buka Investments.
Three companies issued cautionary notices this week: Coronation Fund Managers, Insimbi Industrial and Pick n Pay.
DealMakers is SA’s M&A publication.
www.dealmakerssouthafrica.com
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