Saturday, January 11, 2025
Subscribe
Home Blog Page 61

Ghost Stories Ep27: What to do with those festive savings (with Siyabulela Nomoyi of Satrix)

The Finance Ghost
-
0
Ghost Stories Ep27: What to do with those festive savings (with Siyabulela Nomoyi of Satrix)

We are now in December, which is generally a month of spending rather than investing. Of course, it shouldn’t be that way if you have the correct financial plan in place, a topic that Siyabulela Nomoyi (Quantitative Portfolio Manager at Satrix) joined me to discuss.

We couldn’t resist the opportunity to dig into ETFs as well!

In the final Ghost Stories podcast with Satrix for 2023, topics covered included:

  • The right way to think about saving and investing, particularly in the context of December and January.
  • The benefit of tax-free savings accounts and how interesting they can be with ETFs.
  • The range of equity ETFs, from vanilla products through to factor ETFs.
  • Local vs. offshore and how to play this heading into 2024 as a potentially volatile year in South Africa.
  • The performance of bond ETFs in 2023.
  • Real estate and infrastructure ETFs.
  • The difference between ETF and unit trust structures.

And just for fun, I also asked Siya what he would choose as his ETF exposure going into 2024.

There’s so much in here, underpinned by Satrix’s commitment to South African investor education. To find out more about SatrixNOW, visit this link>>>

Listen to the show here:

>

Disclosure

Satrix Investments (Pty) Ltd is an approved FSP in term 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.

While every effort has been made to ensure the reasonableness and accuracy of the information contained in this podcast (“the information”), the FSP’s, its 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 disclaims 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.

Money, Grede and business: a Kardashian success story

Dominique Olivier
-
0
Money, Grede and business: a Kardashian success story

Despite what the name of their infamous reality TV series suggests, it’s actually quite hard to keep up with the Kardashians. With 280 episodes, a combined total of 1 billion followers and 15 businesses between them, this is clearly not the average family. Love them or hate them, you can’t deny that the Kardashians know how to monetise.

I remember reading a headline a while back that said something along the lines of “The Final Episode of Keeping Up With the Kardashians”. Turns out that wasn’t really the end of this reality TV dynasty (they rebranded to “The Kardashians” when they made the move from The E! Network to Hulu), but for a short moment, I still wondered what the world would be like without the so-called “first family” on our screens. 

This led to me doing some digging into the Kardashian success story, and as per usual, I learned something that could be of use to business owners. As it turns out, there’s no better place to learn the power of personal branding than in the Kardashians’ stable of businesses. 

“You’re doing great, sweetie!”

The question that often gets asked when people are discussing the Kardashians is how this family in particular managed to ingrain themselves so successfully in the global subconscious. I’ve broken it down for you with the help of this interview from the Los Angeles Times. 

It all escalated in 2007, which was a big year for the Kardashian-Jenner family. After moving the family into a sprawling home in Hidden Hills, California, matriarch Kris Jenner entered into talks with Ryan Seacrest to create a television series documenting their “everyday” lives. The Kardashians already had a small amount of fame at this point; Kris had been married to Robert Kardashian, who became very visible as part of OJ Simpson’s legal team between 1994 and 1995. 

Although Kris and Robert had separated in 1991 already, they had both been close friends with OJ and his wife, Nicole Brown Smith, and the Kardashian clan were often spotted in court during the famous trial. Kris married Olympic athlete and motivational speaker Bruce Jenner in 1991, shortly after her divorce was finalised. Bruce’s sports star status, the family’s combined wealth as well as the memorable surname Kardashian were the ingredients in a recipe for small-scale fame. 

Ryan Seacrest sent a camera crew over to film a day’s worth of footage of the Kardashian-Jenners – a blended family made up of 5 daughters and 1 son – at home in their California mansion and was instantly enamoured with the results. Within 48 hours, the first season of the show was sold and Keeping Up With The Kardashians came into being. 

But the show itself wasn’t the catalyst that led to superstardom. Those of you who know your internet history will also remember 2007 as the year that Kim Kardashian’s sex tape with her rapper boyfriend Ray J was leaked, making her a household name practically overnight. This helped to catapult the Kardashian family name even further into the spotlight, with Kim becoming the focus of public fascination. 

While the Kardashian-Jenners have ardently denied that the leaked tape was a publicity stunt of their own design, that didn’t stop them from doubling down on Kim’s moment and milking it for everything that it was worth. As those who work in public relations will attest, there’s no such thing as bad press. In their TV show’s first season, Kris famously told Kim, “You’re doing great, sweetie!” as her daughter posed nude in a Playboy shoot.

While this seems like an odd course of action for a mother to take, from a business point of view, it makes perfect sense. As a brand, Kim was getting serious traction in 2007, and Kris was standing ready to fan those flames, doing exactly what anyone would expect a top-tier marketing executive to do. 

If you’ve got it, flaunt it

The Kardashian business journey began with the establishment of retail stores, including Smooch, a children’s clothing store that operated for six years until its closure in 2009, and Dash, a women’s clothing store launched in California in 2006.

While the family has seen remarkable success with current ventures like Kim’s Skims shapewear brand (valued at a cool $3.2 billion), and Khloe’s size-inclusive denim brand Good American (boasting $200 million in sales), their entrepreneurial path has not been without its share of setbacks. Notable among these are the short-lived PerfectSkin skincare line and the Kardashian Kard prepaid debit card, both lasting only one year in 2010. Additionally, joint business ventures, such as the Kardashian Kollection at Sears (2011-2015) and Kardashian Beauty (2012-2016), reflect a mix of both triumphs and challenges in the Kardashian business portfolio.

Kim is probably the one who has done the most dabbling in various businesses over the last two decades, including the “Kim Kardashian: Hollywood” video game (2014 – present), which was acquired by Glu Mobile in a $2.4 billion deal in 2021. Additionally, her emoticons, known as “Kimojis” (2015 – 2018), achieved notable success, reportedly generating $1 million per minute on the day of launch! In addition to overseeing her shapewear and skincare brands, Kim is now delving into the realm of venture capital with her latest initiative, the private equity firm SKKY Partners. Launched in September 2022, this venture aims to invest in and develop projects within the realms of hospitality, media, and luxury businesses.

Another member of the clan who is well-known for her business ventures is the youngest Jenner. At the age of 18, Kylie Jenner ventured into the makeup industry. The inception of her makeup brand, Kylie Cosmetics, was triggered by the media frenzy surrounding her use of lip filler. In response, Kylie strategically embraced the attention and launched the brand with an initial focus on three “lip kits,” each comprising a liquid lipstick paired with a lip liner. The demand for these products was unprecedented, resulting in immediate sell-outs and launching Kylie Cosmetics into the spotlight.

The success story continued as the brand diversified its offerings, expanding beyond lip kits to include a range of makeup products, such as eyeshadow palettes. Kylie’s entrepreneurial spirit further led her to enter the skincare and baby markets with the introduction of Kylie Skin and Kylie Baby. The financial impact was substantial, with Kylie Cosmetics achieving a remarkable $420 million in revenue within its first 18 months of operation. Surpassing expectations, the brand reached the coveted $1 billion milestone in 2019, accomplishing this feat three years earlier than initially estimated.

The secret to success may be Grede

While Emma Grede may not have the same level of celebrity status as the Kardashian-Jenner family, her behind-the-scenes brilliance has played a pivotal role in launching billion-dollar enterprises with the famous clan. 

At 41, this London-born entrepreneur serves as the co-founder and CEO of Good American, the successful clothing line created in collaboration with Khloé Kardashian. Additionally, Emma is the founding partner of Skims. Her diverse portfolio extends to her role as the co-founder of Safely, a cleaning supplies company launched in 2021 in collaboration with Kris Jenner.

Emma’s journey with the Kardashian-Jenners began in 2013 when she first connected with Kris. The two discussed the ambitions of the Kardashian sisters, and Kris, known for her forthrightness, expressed a desire for meaningful participation in their ventures beyond mere endorsements. This sparked Emma’s idea of developing a size-inclusive clothing line, leading to the creation of Good American. The launch was a remarkable success, with $1 million worth of jeans sold on the first day.

In 2017, Emma and her partner Jens relocated to Los Angeles to be closer to the Kardashian-Jenner family and tap into the lucrative US market. Two years later, Emma was approached by Kim Kardashian to collaborate on Skims. Jens oversees the day-to-day operations of the range, while Emma focuses on design, production, planning, and merchandising. 

Emma acknowledges the unique storytelling capabilities that each member of the Kardashian-Jenner family brings to the table, describing Kris, Khloé, and Kim as “incredible business partners.” Their partnership exemplifies the fusion of fame and entrepreneurial prowess, demonstrating that, in the world of business, fame can indeed be a powerful accelerator.

Monetise like a Kardashian 

You know how each Kardashian has their own “thing”? Kim is the sexy one, Kourtney is the more private one, Khloe is the tall one, etc. It’s like they’ve turned their personal stories – the ups, the downs, and everything in between – into this relatable brand narrative. It’s not just about products; it’s about personalities and connections.

The Kardashians have effectively built and leveraged their personal brands, creating a strong and distinctive identity for each family member that has resulted in massive followings on social media. This individual branding strategy has allowed them to connect with diverse audiences, fostering a sense of authenticity and – dare I say it – relatability.

In my opinion, the main lesson that businesses can learn from the Kardashians is that showing a bit of personality (even if that personality is flawed) and crafting a unique brand story can really make customers feel connected. Having a massive social media following and partnering with the right people are equally important ingredients in the recipe, but they aren’t the secret to success in this instance. For businesses to get a taste of Kardashian success, it’s about creating a brand that people don’t just buy into; they want to be a part of the story.

The question is: can anyone else really keep up with the Kardashians?

About the author:

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

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

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

Ghost Bites (AB InBev | Mondi | MTN)

The Finance Ghost
-
0
Ghost Bites (AB InBev | Mondi | MTN)

Listen to the latest episode of Ghost Wrap here, brought to you by Mazars:

AB InBev exits Russia with an empty glass (JSE: ANH)

There might be a payment down the line – but it won’t be material

Back in April 2022 and in the aftermath of the invasion of Ukraine, AB InBev announced that it was “forfeiting all financial benefit as a non-controlling partner” from the joint venture operations in Russia, called AB InBev Efes. The partner there is Turkish brewer Anadolu Efes and the parties were in discussions at that point in time for the partner to buy out AB InBev’s stake. The impairment at the time for this was $1.1 billion.

Considering there was really only one buyer in town for this share in the joint venture, it’s taken a long time to announce a deal. Perhaps AB InBev was playing for time in the hope that things would improve. Either way, there’s now a transaction on the table and the cash being received by AB InBev up-front is precisely zero. Dololo. Zilch. Nada.

There’s a chance of payments in years to come, subject to regulatory approvals, but AB InBev warns that these would be immaterial anyway.

Mondi is ready with the special distribution (JSE: MNP)

The proceeds from the Russian disposal are earmarked for this

If you’ve been following Mondi, you’ll know that the company disposed of the converting operations in Russia in June 2023 and Syktyvkar in October 2023. There’s obviously some leakage along the way (like transaction costs), but €775 million is available for a special dividend to shareholders.

This works out to €1.60 per ordinary share. Interestingly, to avoid breaking share price charts going forward, there’s a share consolidation where shareholders will receive 10 shares for every 11 shares in issue. This will have the effect of making the share price comparable before and after the special dividend.

This transaction requires a circular and a shareholder vote in mid-January. If all goes to plan, the dividend will be a lovely Valentine’s Day gift (well almost – scheduled for 13 February). I can’t wait for my “from Russia, with love” headline.

And by the way, Mondi has already indicated the exchange rate applicable to the dividend. It works out to R32.4264320 per share. We can all aspire to own so many shares that the seventh decimal place makes a difference.

The SIM registration deadline is here for MTN Nigeria (JSE: MTN)

Hopefully, they will manage to save most of the numbers

This has been a long time coming. The regulator in Nigeria is trying to clamp down on unregistered SIM cards in the country. Since April 2022, we’ve already had a scenario where outgoing calls are barred for subscribers whose numbers are not associated with national identity numbers.

Now, depending on the verification status, lines will be barred by either 28 February or 29 March 2024. I’m not 100% sure what this means for data services. If data was still working up until now and only outgoing calls were barred, then I’m not surprised that it failed to have the desired effect on forcing compliance. Users can just use WhatsApp!

For MTN Nigeria, the relevance here is that they want to retain their customers, so there will be a big drive now to get holders of unregistered SIM cards to sort it out before the deadline. It’s important to note that this is an industry-wide issue, not something specifically targeted at MTN’s business.

Little Bites:

  • Director dealings:
    • The Chair of Mondi (JSE: MNP) has bought shares worth £38k.
    • Niki Giles, the returning CFO of Sygnia (JSE: SYG), has bought shares in the company worth R160k.
    • The COO of Kibo Energy (JSE: KBO) sold shares in the company worth £4k. I cannot stress enough how speculative that company is, so don’t ignore something like this.
    • An associate of directors of Argent Industrial (JSE: ART) sold shares worth R77k. Right at the bottom of the announcement, there’s a note that the shares are linked to a retired director and shareholder of the same associate.
    • Three directors of Adcock Ingram (JSE: AIP) exercised options to acquire shares worth R2.8 million. There’s no indication of any sales yet to cover taxes, but let’s keep an eye out.
  • The process for AYO Technology (JSE: AYO) to finalise its settlement agreement with the GEPF and the JSE is dragging on and on. There’s yet another extension now, with the long-stop date moved out by six months to 30 June 2024. Putting the long in long-stop, that’s for sure.
  • Sasfin (JSE: SFN) announced that Global Credit Ratings (GCR) has affirmed its international scale long and short-term issuer ratings of B/B with a Stable outlook. It’s interesting to me that the outlook has been left at Stable given the disposals of the Capital Equipment Finance and Commercial Property Finance businesses. I would’ve expected to see it improve. This is a cautious approach from the ratings agency.
  • There’s absolutely no liquidity in Deutsche Konsum (JSE: DKR) so the annual results for the year ended September only get a passing mention down here. Even though rental income in this German fund was up 7%, the effect of interest rates hikes meant that Funds From Operations per share actually fell year-on-year. The loan-to-value has shot up from 49.7% to 61.6% which is problematic.

Ghost Bites (Accelerate Property Fund | Anglo American | Ascendis | Jubilee Metals | MC Mining | Richemont | Sabvest | Sun International | Trustco)

The Finance Ghost
-
0
Ghost Bites (Accelerate Property Fund | Anglo American | Ascendis | Jubilee Metals | MC Mining | Richemont | Sabvest | Sun International | Trustco)

Listen to the latest episode of Ghost Wrap here, brought to you by Mazars:

Accelerate Property Fund is starting to take serious strain (JSE: APF)

Did they bite off way more than they can chew with Fourways Mall?

The only good news in the Accelerate Property Fund results for the six months to September 2023 can be found on the revenue line, which moved 5% higher. From then onwards, it’s ugly. So ugly, in fact, that SA REIT Funds from Operations (the key metric) plummeted from R110.7 million to just R26.9 million.

Simply, they have too much debt. The loan-to-value ratio has spiked from 42.1% to 47.7%. The interest cover ratio is down from 1.9x to 1.7x and they’ve had to ask lenders nicely to temporarily relax this covenant while they complete the disposals of certain properties to try and reduce debt.

The Fourways Mall development seems to have been too ambitious, with a vacancy rate of 17% that has been flat in the past six months. To try and fix this, they’ve appointed Flanagan and Gerard to asset manage Fourways Mall and they will be making several other changes. I enjoyed the mention of “dwell time” as an important metric for success: literally, having tenants in place that lead to shoppers increasing their time spent in the mall! A separate circular to shareholders will be issued for the proposed Flanagan and Gerard appointment.

In addition to those challenges, the fund owns a portfolio of B- and C-grade office space, which is where the biggest vacancy problems lie.

These are stressful times for the fund, with a weighted average debt term of just 1.1 years. It will help them tremendously if rates start dropping next year, but hope is never a strategy.

The directors must be taking some heat from major shareholders, as the related party settlement disclosed in the March 2023 results has been amended to have no cash outflow for Accelerate. Full details will be released in due course and I’ll reserve judgement until then.

Unsurprisingly, no dividend has been declared for this period as the fund desperately needs to preserve cash.

A court victory for Anglo American in Zambia (JSE: AGL)

The Kabwe class action has been dismissed

Lead pollution in the town of Kabwe, Zambia, is a very severe problem. Two law firms have been trying to pin it on Anglo American, by leading a class action suit on behalf of Zambian claimants.

This hasn’t worked, as the High Court of South Africa has dismissed the claimants’ application for certification of a class action. According to Anglo American, the court recognised the multiple legal and factual claws in the claim. They even dismissed it with costs, noting that the law firms had taken out insurance for those legal costs (i.e. this won’t hit the pockets of the claimants).

Ascendis Health has released the delisting circular (JSE: ASC)

A significant portion of shareholders will be moving into the delisted space rather than selling

Thanks to a consortium led by Carl Neethling (who also happens to be the CEO of Ascendis these days), there’s an offer on the table for shareholders of 80 cents a share. This has been deliberately structured as an offer rather than a scheme of arrangement, as any shareholder can opt to refuse the offer and hold shares in an unlisted environment instead.

This tells you that management is more interested in operating in an unlisted environment than in taking out all the other shareholders at this price. Acting as Independent Expert, BDO Corporate Finance has opined that the offer is both fair and reasonable to shareholders.

Holders of 54.39% of eligible shares in issue (including Calibre Investment Holdings with 20.78%) have noted that they will vote in favour of the delisting resolution. Those shareholders (along with the consortium members) have also indicated that they will not accept the exit offer.

A holder of a further 11.21% of shares in issue has given written confirmation of an intention to vote in favour of the delisting. This takes total support to around 65.60% for the delisting resolution, which gives it a very good chance of succeeding at the shareholder meeting. They need 75% of those present at the meeting and companies never manage a 100% turnout of shareholders.

If you would like to refer to the circular, you’ll find it here.

Jubilee Metals received strong support for a capital raise (JSE: JBL)

This is exactly how public markets are meant to work

In an accelerated bookbuild structure, a company announces a capital raise and the bookrunners jump on the phone to fill the raise. Jubilee clearly had investors waiting in the wings (they even called this a “very targeted raise”), as the raise was filled almost immediately after it was announced.

You may recall news of an exciting project in Zambia, with International Resources Holding RSC Limited (based in Abu Dhabi) coming in as the major funder. Jubilee Metals is the technical partner on that transaction and has other copper investments in Zambia as well.

To fund the various projects in Zambia, the company wanted to raise £10 million at a price equal to the 30-day VWAP. Due to the volatility in the price, this is a 19% discount to the price on 14 December before the raise was announced.

The sad thing for South Africans is that the bookrunners are based in London. It looks like Jubilee didn’t waste its time by trying to raise on the JSE. That strategy worked out well, as investor demand was such that the raise was increased from £10 million to £13 million.

This is a good reminder that (1) junior mining groups constantly need to raise capital and (2) the market likes what Jubilee is doing in Zambia.

A revised deal on the table for MC Mining (JSE: MCZ)

A consortium led by Senosi Group has filed a revised offer

I must say, the MC Mining SENS announcement doesn’t make it easy for us to find out what is going on here. Perhaps it’s an Aussie thing (as the regulations in that market are very strict around takeovers), but it simply recommends that shareholders “take no action” in relation to the offer. There’s no useful summary of the terms.

This means that I had to go digging in this document to find those terms.

Long story short, there’s a consortium of shareholders that currently hold 64.30% of the shares in issue. Senosi is the big fish in that pond, holding 23.38%. The parties have put forward a number of very good reasons why the company being listed doesn’t make sense, ranging from expected dilution through to cash burn and total lack of liquidity in the stock.

The offer price of A$0.16 per share is a 23.1% premium to the closing price before the first takeover bid by the consortium was announced on 3 November. It’s a 14.3% premium to the closing price on 15 December.

Importantly, if the consortium reaches 75% ownership, they will look to delist the company.

A luxury-grade pain for Richemont (JSE: CFR)

The FARFETCH deal is dead

FARFETCH is set to be acquired by South Korea’s Coupang, which throws the deal with Richemont under the bus completely. Painfully, this means that the $300 million in convertible senior notes issued by FARFETCH to Richemont in November 2020 will probably not be repaid. The carrying value as at 30 November 2023 is EUR218 million (note the currency).

Richemont has no other financial exposure to FARFETCH and none of the underlying Maisons have launched e-concessions on the FARFETCH marketplace. Importantly, YNAP (Richemont’s online business) has not adopted FARFETCH Platform Solutions either.

Perhaps Richemont’s first loss is its best loss here. I remain highly skeptical of the entire concept of online luxury.

Sabvest has announced some portfolio changes (JSE: SBP)

The group holds a wide range of investments

The first change is that the stake in Masimong Group Holdings has reduced from 10% to 9%. The company restructured its capital and got rid of some preference shares as well. The net impact on Sabvest is a receipt of R51 million.

The second change is that Sabvest’s interest in Sunspray Food Ingredients will decrease significantly from 27.67% to 11.1% assuming all conditions precedent are met. This is expected to result in the receipt of R80.9 million in February 2024, with top-up provisions over three years as well.

Finally, Sabcap has acquired an indirect holding in Versofy, one of the largest home and SME solar installation and power solutions groups in South Africa. This is a small effective stake, as Sabvest has a 12.5% interest in a consortium that has bought 30% in Versofy. Sabvest has provided initial guarantees of R15 million and funding of R16.5 million, which may vary as the deal develops.

Sun International acquires Peermont Group (JSE: SUI)

The jewel in the crown is of course Emperors Palace

When a company operates casinos, you surely can’t be surprised when it rolls the dice on a gamble, now can you?

Sun International will fund the acquisition of Peermont entirely through debt, based on an enterprise value of R7.3 billion and an EV/EBITDA multiple of 5.76x. In simple terms, this means they’ve bought all the shares and claims in Peermont for a total value of R7.3 billion on an EBITDA yield of 17.4% (the multiple expressed as a yield instead). That’s an earnings yield above the cost of debt, hence the idea is to use the bank’s money for the deal and repay it as quickly as possible. This is a typical private equity structure, even though Sun International isn’t a private equity fund.

I must caution that EBITDA is before depreciation, which is usually a decent proxy for maintenance capex. These are expensive facilities to keep in decent shape to attract consumers, so using an EBIT yield and testing that against the cost of debt is a better approach. We unfortunately don’t have that information just yet.

Another important point is that R7.3 billion isn’t the amount that will actually change hands here. Included in that amount is Sun International taking on the debt of Peermont. It looks like approximately R3.2 billion will need to be paid to Peermont shareholders for their equity, with that amount being funded by new debt.

This will take Sun International’s gearing level to 2.6x, with a plan to reduce this below 2.0x within 24 to 36 months.

What does this deal bring Sun International? The flagship Emperors Palace resort is obviously a major win (EBITDA margin of 40% which is in line with some of Sun International’s largest resorts), with various other small casinos in the group as well. There will also be some scale benefits in the online sports betting operations, as Peermont also has a business in that space.

If Sun International shareholders shoot the deal down, then a break fee of R75 million will be payable. Sun International has already received support from Value Capital Partners (which holds 26.04% of the shares) and holders of a further 36.50% of shares in issue. This takes total support at this stage to 62.54%, with only 50% needed for the deal to go ahead.

If all goes to plan, Sun International effectively bulks up its local operations and essentially pays for the deal with the profits of the company that it is acquiring. Of course, things can go wrong along the way, which is why deleveraging the balance sheet as quickly as possible will be a priority. Importantly, Sun International is retaining the current dividend policy, so they really are trying to give investors the best of both worlds here.

Note: an earlier version of this piece erroneously noted that 75% approval was needed for this transaction. My apologies for this error.

Trustco releases full details of the drop in NAV (JSE: TTO)

The real estate portfolio dragged NAV lower, as did other factors

Although the opening paragraph of the Trustco announcement talks about the company showcasing its resilience and adaptability, there isn’t much resilience in the net asset value per share dropping sharply from 186 cents to 117 cents.

Part of this is because Trustco is an investment holding company and discount rates moved a lot higher in the past year, leading to a decrease in equity valuations. Another major factor is a 42% drop in property values since the Bank of Namibia imposed loan-to-value restrictions. After a High Court challenge by Trustco, the mandatory deposit amount has been reduced from 50% to 10%.

The highlight is the mining exposure (Meya Mining) which achieved commercial production of diamonds. Trustco holds 19.5% in that asset, way down from the 65% initially acquired in 2016. This discount rate used for the valuation of this business is 28.20%, which gives you a good idea of what sort of returns investors are looking for in frontier markets like Sierra Leone.

Little Bites:

  • Director dealings:
    • The family trust of a director of PSG Financial Services (JSE: KST) sold shares in the company worth over R15 million. That’s a substantial sale!
    • A director of a major subsidiary of African Rainbow Minerals (JSE: ARI) has sold shares worth R1.7 million.
    • The CEO of Invicta (JSE: IVT) and Dr Christo Wiese are still at it in terms of buying the same number of shares on the open market. They’ve each acquired shares worth around R86k in the company.
    • A director of Clicks (JSE: CLS) has bought shares worth R31k on the market.
    • Among various Sygnia (JSE: SYG) directors who exercised options to acquire shares, there were a few who haven’t sold any of those shares. That’s unusual and worth a mention.
  • Although this isn’t a director dealing in the purest form, there’s a good reminder on the market of how much money the two founding partners of African Rainbow Capital have made. Shares in African Rainbow Capital Investments (JSE: AIL) worth R125 million have been transferred from African Rainbow Capital (Pty) Ltd to private companies related to each of Dr. Johan van Zyl and Johan van der Merwe. Yes, that’s a total of R250 million.
  • Harmony (JSE: HAR) has released the circular related to the proposed top-up to the B-BBEE transactions. You’ll find it here if you want to read it.
  • Sebata Holdings (JSE: SEB) has released results for the six months to September. The operating business recorded a 2% decrease in revenue. The headline loss per share has deteriorated from 5.27 cents per share to 9.91 cents per share. The value in this group is derived from a receivable related to the disposal of Sebata Municipal Solutions to Inzalo Capital, with total financial assets coming in at over R300 million. Sebata’s market cap is R230 million. The recoverability of that amount is in doubt and if performance conditions aren’t met, then the business sold to Inzalo will be returned to the group. Of course, Sebata and its shareholders would far rather receive the cash than the shares.
  • City Lodge (JSE: CLH) announced the results of its odd-lot offer. The company repurchased 314,698 shares (0.05% of the total issued ordinary share capital) for R1.48 million.
  • Texton’s (JSE: TEX) rights offer has become unconditional, which means it will go ahead. Regular readers of Ghost Bites will know that I’ve been very critical of this transaction and the impact it has on minority shareholders. The circular will be released on Thursday, 21 December.
  • A further three non-executive directors of Shaftesbury Capital (JSE: SHC) have stepped down from the board as part of right-sizing the board after the merger of Capital & Counties and Shaftesbury.
  • Kibo Energy (JSE: KBO) announced that a non-executive director and significant shareholder of Mast Energy Developments (MED) – the subsidiary that is still waiting for its money from its joint venture partner – has given a director loan of £81k to MED. He sold 14,000,000 MED shares for this out of a total holding of 17,708,538 MED shares. The loan bears interest at 7% per annum and (if I understand the somewhat cryptic announcement correctly) is repayable through the issuance of 14,000,000 MED shares, regardless of their value.
  • Andrew Mthembu, who has held a number of executive roles in industries like telecoms, has been appointed to the board of KAP (JSE: KAP).

Ghost Bites (Grindrod | Huge Group | KAP | SA Corporate | Spear | Tharisa)

The Finance Ghost
-
0
Ghost Bites (Grindrod | Huge Group | KAP | SA Corporate | Spear | Tharisa)

Listen to the latest episode of Ghost Wrap here, brought to you by Mazars:

Grindrod looks to extend its stay in Mozambique (JSE: GND)

This port is incredibly important, especially as South African infrastructure deteriorates

Grindrod holds an indirect 24.7% stake in the Maputo port. The current concession expires in 2033, so there’s only 10 years left of the current deal.

The good news is that the company operating the port has been in discussions with the Mozambique government to extend the current concession out to 2058. The even better news is that the government has issued an in-principle approval for the extension.

This facilitates increased investment to expand the capacity at the port, which is particularly important given the state of play at Transnet and the opportunities this creates for Grindrod and Mozambique.

Huge Group raises R300 million in pref share funding (JSE: HUG)

This settles existing debt facilities with RMB and leaves plenty leftover for investments

Huge has raised preference share funding from RMB. Instead of a loan, the bank subscribes for preference shares in a funding SPV (special purpose vehicle) and then the SPV can pass that funding on to group companies as required.

Under this structure, RMB will subscribe for R150 million in A preference shares and R150 million in B preference shares. The A shares are redeemable over five years, starting in year three. The B shares are redeemable in a bullet structure (a single redemption) at the end of year five.

The existing term debt facilities with RMB of R162.5 million will be settled with these proceeds. That leaves a solid amount over and above this settlement for further investments by Huge. Let’s hope they do a better job than in some of the previous deals and investments.

KAP’s earnings drop by at least 20% (JSE: KAP)

This is the lump of coal under the tree for KAP shareholders

KAP released a trading statement dealing with the five months to November 2023. The biggest issue is weakness in global polymer margins, with a direct impact on key business Safripol. This problem has dwarfed any of the usual suspects, like load shedding and Transnet port congestion. Safripol’s operating margin is “well below” the through-the-cycle guidance range of 7% to 9%.

PG Bison did fairly well in this period and the R1.9 billion MDF expansion project has been completed. Export sales have been strong but these are at a lower margin than domestic sales, so the mix effect means a slightly lower margin overall.

Unitrans saw performance go backwards due to the broader operating environment. The division has been restructured and those benefits will come through in the second half of the financial year.

Feltex (which plays in the new vehicle assembly value chain) had a decent period, with a steady order book supported by a recovery in assembly volumes.

There’s also good news at Restonic, which achieved volume and revenue growth in this period despite subdued demand in the furniture retail market.

Finally, Optix saw a dip in profits despite satisfactory growth in revenue. This is due to the costs of scaling the business in line with objectives.

KAP has a number of businesses (as you can see), but Safripol is the key. With poor performance in that operation, HEPS is expected to be at least 20% lower than the comparable period. They don’t give a tighter range than that, which suggests that the drop could be significantly worse than 20%.

The group is within debt covenants and raised a R3 billion revolving credit facility, so the balance sheet is managing for now at least.

SA Corporate gives a pre-close update (JSE: SAC)

This deals with the key metrics for the year ending December 2023

SA Corporate Real Estate has a varied portfolio that even includes residential units. Across the portfolio, it looks like the fund will achieve 4% like-for-like growth in net property income for the year ending December 2023.

The retail portfolio has seen a dip in 12-month rolling trading density growth, from 5.1% to 4.8%. Although reversions were slightly negative in the period ending June, they are expected to swing to between 2.5% and 3.0% for the full year thanks to favourable renewal activity.

Even the office portfolio is showing some signs of improvement, with vacancies down from 16.6% at the end of June to around 15% by the end of the year. Reversions have also moved positive, which is big news.

The industrial portfolio has one minor vacancy and will see reversions move negative for the full year due to the renewal of a motor showroom.

In the residential portfolio, rental escalations are between 3.5% and 4%.

The group is also busy with a restructure of its residential business, with full details available in the presentation at this link.

Spear expects flat distributable income per share (JSE: SEA)

The commercial office portfolio is a headache, but will hopefully be resolved soon

Spear REIT is known as the property fund that is focused solely on the Western Cape. Having recently done a roadtrip in northern parts of the country and having also done a lot of driving around the Western Cape where I have lived for the past few years, I can confirm that this is a solid strategy in South Africa.

But even the Western Cape infrastructure can’t make up for weakness in the commercial office portfolio, where the vacancy rate has gone the wrong way. This is because a large tenant vacated space in Parow and the area is being relet to more than one party. Negotiations with one party have dragged on, leading to an inflated vacancy rate as at 30 November 2023 (the end of the third quarter of the financial year). The fund believes that this vacancy will be addressed soon. They even channeled their inner Jerome Powell by referring to it as “transitory”!

The industrial portfolio is in much healthier shape than commercial, reflecting a vacancy rate of just 1.41%. Rental reversions are +5.4% and in-force escalations are the highest across the Spear portfolio, coming in at 7.66%.

Convenience retail is also doing pretty well, with a vacancy rate of 2.95% and positive rental reversion rate of 4.65%. In-force escalations of 7.24% aren’t far behind the industrial portfolio. 41% of the portfolio is occupied by national tenants on long-dated leases with solid payment records.

In other good news, at least Spear is managing to recover 96% of the cost of diesel supplied across the portfolio. There aren’t many funds that can say that! Importantly, once commissioned, Spear’s total PV solar production capacity will cover 25% of its demand.

The balance sheet reflects an improvement to cost of debt by 4 basis points since the interim period, but a significant year-on-year increase from 8.66% to 9.55%. The fixed debt ratio is just under 40%, which is still well below the target range of 65% to 75% of debt to be fixed for 24 to 36 months. The loan-to-value has moved higher, from 36.30% at FY23 to 40.70%. The target range is 38% to 43%. The disposal of the Liberty Life Building in Century City will reduce the loan-to-value ratio by 500 basis points by the end of FY24.

Although the second half of the year is reflecting an improvement on the situation in the interim period, management’s expectation is for distributable income per share to only be 0% to 1.5% higher year-on-year. It’s tough going in property at the moment.

In morning trade, it looked like somebody had finger trouble with a trade that went through way too high:

Tharisa: a tale of two commodities (JSE: THA)

PGMs have had an awful year, but chrome has been much stronger thankfully

Tharisa produces both PGMs and chrome, with the latter saving the story right now. The results for the year ended September 2023 reflect really tough times in PGMs (as we already know this year), while chrome prices have been on the up.

Let’s start with reef mined, which is the first step in producing these commodities. The volume of reef mined fell by 24.1%, with various issues related to the open pit mining process (including adverse weather). The company purchased ROM ore to maintain plant throughput.

Production of PGMs fell by 19.3% and sales of PGMs fell by 14.4%. The average PGM basket price tanked by 26.2% in dollars. Rand weakness mitigated this disaster somewhat, with prices in local currency down by 15.7%. The PGM market is so tough at the moment that the Karo Platinum Project timeline for commissioning has been pushed out by 12 months to June 2025. They can accelerate that timeline if markets improve.

Chrome production fell 0.2% and sales were up 0.3%, in both cases excluding third party volumes. Production may be flat, but the average chrome price was up 25.8% in dollars. In rand, it was up 44.7%!

Putting it all together, we find a 5.3% drop in revenue. That doesn’t sound too bad, but when combined with inflationary pressure in costs, the net impact is a 42.4% decrease in EBITDA. Profit before tax fell by 48.1%. The free cash flow situation is very different to the move in profitability, with that metric up by 15% and net cash on the balance sheet up by 60.9%.

In case you’re wondering about the commodity split, PGMs contributed just 29% of gross profit in this period, down from over 62% in the comparable period.

Looking ahead, production guidance for FY24 is between 145koz and 155koz PGMs (vs. 144.7koz in this period and 179.2 koz in 2022) and between 1.7 Mt and 1.8 Mt of chrome concentrates (vs. 1.58 Mt in both 2022 and 2023). At current commodity prices, the near-term growth is clearly going to come from chrome.

Little Bites:

  • Director dealings:
    • Carl Neethling has been leading a consortium that is looking to do a take-private of Ascendis (JSE: ASC). Together with his associates (under JSE rules – so don’t mistake this as meaning they are part of the consortium), there have been acquisitions of further shares worth R5.5 million. This takes the combined holding of Neethling and these specific associates to 11% of Ascendis.
    • Now, here’s a substantial example of a show of faith in a company. The CFO of MAS (JSE: MSP) – the real estate fund that has suspended its dividend based on concerns about the debt refinancing environment in a few years from now – has bought shares worth R2.06 million.
    • An associate of the Wapnick family – the people running Octodec (JSE: OCT) – has bought shares in that company worth R591k.
    • A director of Remgro (JSE: REM) exercised share appreciation rights and sold the entire lot, not just the amount required to cover the tax.
    • The CFO of RH Bophelo (JSE: RHB) bought shares worth R49k.
    • The non-executive chairman of Primary Health Properties (JSE: PHP) and his associate have collectively acquired shares under the dividend re-investment plan worth just over £3k.
  • The business rescue practitioners at Tongaat Hulett (JSE: TON) certainly aren’t going to be taking a break this December. The court has ruled that the meeting to approve the business rescue plan must be adjourned from 14 December to no later than 11 January 2024. The bigger news is that the plans need to be amended, presumably to take into account the payment of sugar levies based on a separate recent court blow to Tongaat Hulett. This business rescue is on a knife’s edge.
  • Conduit Capital (JSE: CND) hopes to publish its financials for the year ended June 2022 (not a typo) by January 2024. The problem is that CCL (94.4% of revenue) is in liquidation, hence many things have needed to be finalised to make this audit work possible.
  • The board of Afristrat (JSE: ATI) has reached the conclusion that the company is no longer a going concern. In fact, things are so bad that they won’t even use business rescue provisions, as there needs to be a reasonable prospect of the business being saved before this route can be followed. They do not believe that such a prospect exists. Ironically, the board is waiting for the outcome of a liquidation application ruling in court (the hearing was more than three months ago) before it can act on this conclusion. The reality is that the show is over at Afristrat. The company (and its shareholders) is a casualty of fraud in the Getbucks business that is part of the group.
  • Khalid Abdulla, former director of AYO Technology (JSE: ACT), has been fighting the JSE’s recent censure and associated financial penalty at the Financial Services Tribunal (FST). Initially, a fine of R2 million was handed down by the JSE for transgressions. The reconsideration application was heard on 15 September and a decision has now been given, with the application being partially upheld. Aside from a wording change to the breach of JSE rules that led to the fine, the more relevant change is that the FST has reduced the fine from R2 million to R1.2 million. The rest of the application was dismissed, so the public censure is still in place and the fine is due immediately.
  • Sanlam (JSE: SLM) has consolidated its stake in AfroCentric (JSE: ACT) under Sanlam Life. The total stake is 60% in AfroCentric. There is no actual change in holding here, but it’s a sign of the strategic thinking.
  • Marshall Monteagle (JSE: MMP) announced the resignation of David Marshall as CEO. He has been in the role since 2009. Warwick Marshall is taking over the top job, having established the trading division of the group in 1993.

Ghost Wrap #58 (Tharisa | enX – Nedbank | Thungela | Italtile | Grindrod)

The Finance Ghost
-
0
Ghost Wrap #58 (Tharisa | enX – Nedbank | Thungela | Italtile | Grindrod)

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

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

  • Tharisa has PGM and chrome operations, which means the company has two levers to pull in response to commodity prices.
  • enX is selling Eqstra to Nedbank, which has interesting financial and strategic considerations for investors in both those groups.
  • Thungela can’t do much about local infrastructure at Transnet and the negative effect it has, but some clever dealmaking in the Aussie acquisition has paid off.
  • Italtile is still suffering in an environment where consumers are buying holidays and experiences, not new bathrooms.
  • Grindrod has a partially mitigating factor when it comes to local infrastructure, holding an indirect stake in the company operating the Maputo port – and that concession is being extended by the Mozambican government. 

Ghost Bites (AEEI | RMB Holdings | Sea Harvest | Thungela)

The Finance Ghost
-
1
Ghost Bites (AEEI | RMB Holdings | Sea Harvest | Thungela)

Listen to the latest episode of Ghost Wrap here, brought to you by Mazars:

AEEI is dragged into the red by AYO Technology (JSE: AEE | JSE: AYO)

The highlight is definitely the Fishing and Brands segment

African Equity Empowerment Investments (AEEI) released results for the year ended August 2023. They are complicated, as they include discontinued operations (AYO Technology) and the reporting of normalised headline earnings, which always needs to be treated with caution.

The AYO results have once again put the group in the red, but that is being unbundled to shareholders (lucky them) and so this is now a discontinued operation from the perspective of AEEI. It should be noted that this isn’t the only blemish in the numbers, as there’s also a large impairment in the biotechnology business.

The business that is worth focusing on is Fishing and Brands, with that segment delivering profit before tax of nearly R78 million in this period. The Technology segment (not AYO, but rather one other business) made profit before tax of R13 million. The Health and Beauty segment made a small loss off a revenue base of R49 million. Events and Tourism managed to lose R15.7 million off revenue of R24.9 million.

You probably know this already, but AEEI is a scrappy group of businesses with the embedded poison pill that is AYO Technology. The unbundling will at least take AYO out of the mix.

RMB Holdings releases interim results (JSE: RMH)

It’s important to adjust for the special dividend when looking at the NAV move

RMB Holdings is busy with a classic value unlock strategy, which means managing existing assets as efficiently as possible and returning capital to shareholders along the way. This is why it’s important to look beyond the year-on-year move in net asset value (NAV) per share of -56%. The group is intentionally becoming smaller.

Instead, the right metric is to look at NAV per share excluding the impact of the special dividend. On that basis, the group has actually grown by 5% to 104 cents per share.

There’s another special dividend coming of 23.5 cents per share, payable in December. This is being funded by the cash received for the settlement of the Atterbury base loan, as well as the cash generated by ongoing operations.

The current share price is 63 cents a share.

Sea Harvest is fishing for an acquisition (JSE: SHG | JSE: BRT)

The company has released a cautionary announcement

Sea Harvest released a cautionary announcement regarding a potential acquisition of certain businesses and assets of Terrasan. Although we don’t know exactly what is up for grabs, a quick look at the Terrasan website shows that the group has business interests in abalone, pilchards and aquafeed.

Discussions are clearly a long way down the road, as the companies are obtaining the various regulatory approvals and are filing a merger applications with the Competition Commission

As Sea Harvest is a 54%-held subsidiary of Brimstone, that company also released a cautionary announcement regarding this potential acquisition.

Transnet issues continue to plague Thungela (JSE: TGA)

Export saleable production by the South African operations have fallen year-on-year

Thungela released a pre-close update dealing with the year ending December 2023. It’s been a tough year for the entire coal industry, with prices way down vs. last year. Whether you look at the Richards Bay Benchmark or Newcastle Benchmark coal prices, they have more than halved year-on-year in dollars. Interestingly, each of the major operations can end up selling coal at a discount or a premium to the benchmark price, depending on the specific underlying contracts.

Sadly, export saleable production in South Africa is down by 7.6% due to a deliberate reduction in response to poor Transnet performance. Export sales in South Africa are flat year-on-year, so production was effectively adjusted downwards to the realistic level that Transnet can support. There’s certainly no shortage of demand. We just have to get the stuff to the ports.

The security issues at Transnet, as well as locomotive breakdowns, seem to be problems that just cannot be solved. Luckily, Thungela has certain operational attributes that allow it to be flexible in terms of getting the coal onto trucks. Even then, production had to be curtailed.

The Ensham acquisition in Australia has a different story to tell, with export production ahead of expectations. It’s nice to have working infrastructure! There were many critics of the Ensham deal when Thungela first announced it, but perhaps it is the right long-term play in the context of Transnet. It also helps that the eventual price paid for Ensham was R3.2 billion, not R4.1 billion as expected. This was due to closing adjustments and the lock-box structure with a date of 1 January 2023, which allowed Thungela to benefit from the performance from that date until completion.

Thungela’s net cash position at the end of 2023 is expected to be R9.6 billion.

Little Bites:

  • Director dealings:
    • Here’s a big one: the CEO of BHP (JSE: BHG) has sold more than half of his stake in the company for a total of nearly AUD 19 million. The announcement specifically notes that this is due to a divorce, so it’s more a reminder of how big divorces can get than a view on the share price itself. It’s also an important reminder to read SENS announcements carefully, especially about director dealings and any reasons given!
    • Sabvest Capital (JSE: SBP) has director representation on the board of Metrofile (JSE: MFL) in the form of Chris Seabrooke. Sabvest is an institutional investor, but it still counts as a director dealing that the company bought R2.7 million worth of shares in Metrofile.
    • A non-executive director of Richemont (JSE: CFR) has bought shares worth R177k.
    • The wife of a director of Afine Investments (JSE: ANI) has bought shares worth R10k.
    • An associate of a director of Huge Group (JSE: HUG) bought shares worth nearly R8k.
  • Sasfin (JSE: SFN) needs to send its shareholders a circular dealing with the disposal of the Capital Equipment Finance and Commercial Property Finance businesses to African Bank. A dispensation has been obtained for the 60-day rule. Sasfin hasn’t committed to a date for the release of the circular.
  • In an awkward update for Marshall Monteagle (JSE: MMP), the company corrected what was said in the results announcement regarding the potential sale of its California property for $26.5 million. The initial disclosure was that contracts have been exchanged. Instead, the company is only at heads of terms stage, which means negotiations on smaller points are still underway.
  • For those interested in environmental reporting and how mining groups are responding to climate change, Glencore (JSE: GLN) announced that it has concluded engagements with shareholders who voted against its climate plan. An update plan will be released in March 2024, incorporating the important acquisition of 77% of Teck’s Elk Valley Resources (EVR) steel making coal assets.
  • Orion Minerals (JSE: ORN) has beefed up its board with the appointment of two experienced mining executives as non-executive directors.
  • The ex-CFO of Astral Foods (JSE: ARL), Daan Ferreira, has been appointed as a non-executive director on the board on Premier Group (JSE: PMR).
  • There’s another resignation from the board of AYO Technology (JSE: AYO), this time in the form of non-executive director Valentine Dzvova. She is the CEO of African Equity Empowerment Investments (JSE: AEE), so this is part of the overall separation of these two companies.

Ghost Bites (enX | Jubilee Metals | Marshall Monteagle | Trustco)

The Finance Ghost
-
0
Ghost Bites (enX | Jubilee Metals | Marshall Monteagle | Trustco)

Listen to the latest episode of Ghost Wrap here, brought to you by Mazars:

enX is offloading Eqstra to Nedbank (JSE: ENX | JSE: NED)

The banking group is bulking up its vehicle leasing business

Back in June, enX alerted the market to a potential transaction to divest Eqstra. The group feels that it isn’t the right owner for Eqstra because the latter needs capital to scale and enX doesn’t have access to capital at the same rates that banks do. This makes it difficult for Eqstra to compete with the fleet solutions of banking groups.

The solution here is that if you can’t beat them, join them. Eqstra will be acquired by Nedbank, thereby solving the funding problem for the business and giving Nedbank a much bigger footprint in this space. For enX, this takes the pressure of Eqstra off its balance sheet, which also removes the majority of enX’s interest-bearing debt.

This is a very big step for enX, as it represents the disposal of a majority of its assets or undertaking. This puts it into s112 territory from a Companies Act perspective. It’s also a Category 1 transaction under JSE rules.

The structure is that Nedbank will subscribe for a 50.2% stake in Eqstra. The company will then use those subscription proceeds to repurchase all the shares held by enX. Nedbank will also put in money for Eqstra to repay loan accounts to enX. The valuation of the equity is based on NAV plus a modest premium of R16 million, less transaction costs.

The minimum subscription price is R379 million, but it could be a lot higher depending on changes in NAV of Eqstra. Had the deal closed on 31 August for example, the subscription price would’ve been R534 million.

Assuming the minimum of R379 million applies, then the gross proceeds (equity and loan repayments) to enX will be R890 million.

Either way, it looks like a significant special distribution is on the cards here. enX needs to keep R100 million in escrow for a period of three years and also wants to retain some capital for “general corporate purposes” – no estimate for that amount is given. The rest will be a return of capital to enX shareholders.

There are loads of regulatory (and shareholder) approvals still to come here. There’s also a material adverse change clause. It’s no guarantee that the deal will close, but it’s usually the case that these requirements are met unless a really nasty surprise comes up. Holders of 49.93% of enX shares in issue have already pledged their support for the deal, so there’s quite some way to go to meet the necessary approval threshold.

For context, the enX market cap is around R1.55 billion.

Jubilee takes a big step forward with its copper story (JSE: JBL)

This deal also marks the start of a new strategic relationship with a major global partner

Jubilee Metals regularly makes a song and dance about its technical capabilities. Talk is cheap, but luckily there’s a lot more than talk here. The latest news is that International Resources Holding RSC Limited (based in Abu Dhabi and part of the most valuable listed holding company in the UAE) is acquiring one of the largest copper waste rock assets on the surface in Zambia. Jubilee Metals is being appointed to design, implement and operate the copper processing solution.

The project cost is likely to be around $50 million and Jubilee has the capability to construct and commission all modular copper units within a 12-month period, with a planned commencement in the first quarter of 2024.

This partnership is important to Jubilee and its shareholders because the company can focus on providing technical solutions to partners who have large balance sheets. This is essentially a capex-light approach to growing the copper business.

Marshall Monteagle turns profitable despite lower revenue (JSE: MMP)

This small cap is not widely followed by the market

Marshall Monteagle is a collection of businesses that includes a mix of FMCG and property investments. This immediately makes it tricky for investors to understand, which is why many of them don’t bother. Liquidity is hard to come by for small caps on the JSE. It’s even trickier for companies that aren’t easy to unpack.

In the six months to September 2023, the company reported a drop in revenue from continuing operations of 19%. Operating profit before tax fell by 66%. Although cost-cutting initiatives in the FMCG business helped, the reality is that the South African retail landscape is anything but favourable right now.

Despite this, profit after tax from continuing operations swung from a loss of $2.7 million to profit of $674k. This all happened on the other expenses line, with a significant negative fair value move last year that didn’t repeat in this period.

Cash and cash equivalents are down by 3%, which isn’t much when you consider the drop in operating profit. The interim dividend is consistent at 1.9 US cents per share.

Lots of pretty writing at Trustco and a big drop in NAV (JSE: TTO)

Credit to whoever wrote this SENS announcement: it gets full marks for use of language

Trustco released a trading statement that would make a decent entry for an English writing competition. It talks about things like a “constellation of challenges” and the “burgeoning cost-of-living conundrum” – all very fancy stuff.

After a few flowery paragraphs, they get to the meat of the thing. In an environment of higher discount rates, the value of a portfolio of businesses comes under pressure because the future cash flows are discounted to today at a higher rate. On top of this, there were issues related to loan-to-value limitations placed on the Namibian property market by the Bank of Namibia, although Trustco seems to have successfully challenged those limitations in court. The challenge was only after year-end though, so the impact of a drop in property valuations is being felt in these numbers.

Long story short, the net asset value (NAV) per share for the year ended August 2023 is expected to be between 98 and 136 cents. It was 181 cents a year ago.

The market gave the share price a 45% smack in response, taking it down to 27 cents (still a heavy discount to NAV).

Little Bites:

  • Director dealings:
    • Value Capital Partners – which has director representation on the board of Tiger Brands (JSE: TBS) – has bought shares in that company worth around R95 million. This is an institutional investor so the quantum isn’t a fair comparison to other director dealings, but the direction of travel matters.
    • The chairman of FirstRand (JSE: FSR) exercised a put option and sold shares worth R59 million. The strike price on the option was similar to the current spot price, which is interesting. It was part of a collar hedge transaction related to a loan.
    • An executive director of Santam (JSE: SNT) has bought shares worth R610k.
    • A director of OUTsurance Group (JSE: OGL) has bought shares worth R103k.
    • Protea Asset Management (an associate of Sean Riskowitz) bought shares in Finbond (JSE: FGL) worth R27k.
  • In case you find sustainability-linked financing interesting, Barloworld (JSE: BAW) managed to shave 3 basis points off two of its loans thanks to meeting targets. Simply, these loans get cheaper if borrowers meet agreed conditions.
  • After 12 years at Shaftesbury Capital (JSE: SHC), Chris Ward is stepping down from his current role as COO. He formerly served as CFO of the group. It sounds like they are splitting on very good terms and his role won’t be replaced on the board.
  • The drama at Tongaat Hulett (JSE: TON) continues. One of the potential rescuers, RGS Group Holdings, has made an application to court regarding certain procedural elements of the planned meetings and other applications currently in court. I’m certainly no lawyer, but it looks like RGS is basically demanding that its deal should be voted on before the other one. The business rescue practitioners are opposing this application.
  • Labat Africa (JSE: LAB) is still busy with the audit for the year ended May 2023. This result is obviously very late now and the annual report can’t be released until the audit is complete. No timeline has been given by the company for completion.
  • The court battles around PSV Holdings (JSE: PSV) continue, with DNG Energy promising that it has the funds and that a formal offer for the business is coming.

Snapshot: photography and the art of disruption

Dominique Olivier
-
4
Snapshot: photography and the art of disruption

Before the 1840s, visual artists had a complete monopoly on the business of making pictures. Then the camera was invented, and the world as we knew it was turned on its head. Back then, it was called the death of art. Today, we know it was really a rebirth.

Have you ever gone on a Tinder date with someone who looked nothing like the pictures on their profile? If so, you might have a bit of sympathy for Henry VIII, who is reported to have grumbled “She is nothing so fair as she hath been reported” when he met his fourth wife, Anne of Cleves, for the first time in 1539. 

You see, poor Henry had been led astray by an over-diligent artist’s hand when he became engaged to Anne. Having never met her in person (he was in England at the time and she was in Germany), the only way to know what she looked like was to study a portrait of her that had been painted by Hans Holbein the Younger. The calm, pale visage depicted in the portrait was apparently a far cry from the face that Henry saw for the first time when Anne arrived in England. Legend has it that he was so incensed by the artist’s deception that he tried to stop the marriage, but political ties with Germany took precedence. The wedding took place, but the marriage was annulled just six months later – unconsummated. 

As citizens of the modern age (who carry powerful cameras around in our smartphones as standard), it seems ludicrous to imagine a time in the world where the only way to know what someone looked like was to rely on an artist’s depiction. To this day, we don’t know what it was about Anne’s looks that upset Henry so much. All we have of her are portraits and Henry’s scornful comments. 

The day the art world stood still

In 1839, Louis Daguerre created the first successful photographic process, called the daguerreotype, which allowed him to use light to capture an image on silver-coated copper plates. Just three years later, the first professional photography studios started to appear in Europe, using technology that condensed Daguerre’s thirty-minute-long photographic process into twenty seconds. 

In 1884, George Eastman developed photosensitive film, eliminating the need for photographers to carry around plates and toxic chemicals. Four years later, Eastman’s Kodak camera went on the market, taking photography out of the hands of professionals and making it accessible to the man on the street. By 1901, every person who could afford a Kodak Brownie camera could photograph whatever they wanted. 

Business owners will no doubt read this little summary of the history of photography and shake their heads in sympathy. Regardless of your industry, disruption comes at you fast. In the span of just one lifetime, photography evolved from scene fiction to everyday fact. 

Rage against the machine

As you can rightly imagine, no-one was more upset by the invention of photography than the great painters of the 19th century. 

From the earliest cave drawings to the most magnificent masterpieces of the Renaissance, art had always been used as a tool to copy what the human eye could see. The job of the artist was to create a believable replica of an object, landscape or person, and the more accurate the depiction, the better (just ask Henry VIII). Artists spent centuries developing techniques, materials and colours that would allow them to capture life by the work of their own hands. The most successful artists of each era had throngs of adoring patrons who considered their talents practically godlike and were willing to pay exorbitant prices for their works. 

And then along comes Louis Daguerre with a mechanism that can capture an exact copy of anything in the world in a fraction of the time or effort that it took to create a painting. Democracy was coming to overthrow the monarchy of the art world, and the royals in charge were not impressed. 

Disruption invites invention

When Daguerre demonstrated his new process for the French Academy in August 1840, Paul Delaroche, the celebrated history painter, proclaimed: “From today, painting is dead!”

In some ways, he was right. Art’s function as a way of illustrating the world around us was rendered moot from the moment that the first photograph was taken. But did that mean that it had no functions left at all?

While there was initial hostility and derision from artists, once emotions cooled down, many viewed photography as a tool that could be used to enhance and elevate their art. Of course there were those hardheaded individuals who derided the invention of the camera and stuck to their painterly guns in the vague hope that photography was a fad and that their patrons would return to them eventually. For the most part, they have been written out of history, left behind when the curve of invention rolled past them. 

More flexible artists saw the photograph as a way to expand upon the shadow boxes that they had been using for hundreds of years prior. Since one of the greatest challenges of painting from life is translating a three-dimensional object onto a two-dimensional surface, the work of the camera in creating a two-dimensional reference image that an artist could work from allowed them to render scenes and figures with a greater degree of accuracy than ever before.

Others questioned why accuracy in painting was needed at all. If the work of the camera was satisfying the need for images that looked exactly like what they depicted, then what else was left for an image to do? An artistic movement called Impressionism answered this question by shifting focus from everything that a camera could capture to everything that it couldn’t. Fleeting moments of light and shadow, movement and emotion became their subject matter. 

One indelible impression 

Impressionist painters such as Claude Monet, Pierre-Auguste Renoir and Edgar Degas moved away from detailed, realistic depictions and instead embraced a more subjective and interpretative approach. Their works often featured loose brushstrokes, vibrant colors, and a focus on the atmosphere and mood rather than precise representation. By deliberately blurring the lines and creating a sense of ambiguity, they aimed to convey the immediacy and evanescence of the scenes they painted.

Impressionism challenged the traditional purpose of art by suggesting that an image’s value lay not in its faithfulness to reality but in its ability to evoke emotion, capture the essence of a moment, and provide a unique perspective that transcended mere replication. 

The movement marked a significant shift in artistic philosophy, encouraging artists to explore the boundaries of perception and redefine the purpose of visual representation. In the wake of Impressionism, less figurative forms of art followed and flourished: Abstraction illustrated how much we could interpret from colour and shape alone, while Surrealism illustrated our wildest and most incoherent dreams. 

If the Impressionists hadn’t led the charge and innovated their way out of disruption, it’s very possible that Paul Delaroche’s exclamation about the death of art would ring true. Fortunately, all artists are essentially self-employed entrepreneurs, which means that they have always had the tools to problem-solve their way out of a tough spot. So instead of the death of art, the camera brought about a stunning rebirth that freed artists from the shackles of representation and allowed them to peer beneath the surface, looking deeper into the things that make us human than ever before. 

How is a business like a work of art?

There are two important lessons for businesses to take out of the history of the photograph. 

Firstly, disruption is inevitable. Regardless of your industry, it will find you and it will try to end you. If you deny the disruption and wait for it to blow over, you run the risk of becoming like those artists who couldn’t adapt to the use of the camera – left behind in the previous century. Expect disruption – in fact, welcome it with open arms when it comes, because disruption is the fertile soil in which innovation takes the strongest root. 

Secondly, never stop adapting. Here I need to mention the original disruptor in this story, Kodak, which found itself at the crest of the wave of innovation in the early 1900s. It’s all well and good to be innovative, but you can’t be innovative once and then call it a day. The wave keeps moving forward, and if you don’t stay at that forefront, there’s a very real chance that it will roll over you. Kodak was too slow to adapt to the disruption caused by digital cameras (ironically their own invention, which they backburnered in favour of film) in the late 1990s, and as a result, they have become almost as irrelevant as the film cameras that they sell. 

As AI-generated art moves from experimental joke to serious contender in the art world, I for one can’t wait to see how this generation’s artists will reshape what art is amid the disruption.

About the author:

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

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

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

Ghost Bites (African Rainbow Capital | Eastern Platinum | Grindrod Shipping | Harmony | Italtile | MAS | RMB Holdings)

The Finance Ghost
-
1
Ghost Bites (African Rainbow Capital | Eastern Platinum | Grindrod Shipping | Harmony | Italtile | MAS | RMB Holdings)

Listen to the latest episode of Ghost Wrap here, brought to you by Mazars:

ARC completes its rights offer (JSE: AIL)

The underwriter got a big chunk of shares, which isn’t a shock

I’ve written extensively about this rights offer and some of the mechanics that I felt made it painful for minority shareholders. I won’t delve into that again here.

The latest news is that the rights offer by African Rainbow Capital has been completed and holders of roughly 65% of shares in issue followed their rights. This means that the underwriter got around 35% of the shares being issued in this capital raise.

For those who didn’t follow their rights and ended up with those shares going to the underwriter, this was a significant loss of value because of the pricing of the rights issue.

Eastern Platinum announces the whistleblower findings (JSE: EPS)

The good news is that they were unsubstantiated

The special committee of independent directors has worked through the investigation of the whistleblower allegations at Eastern Platinum. The allegations related to undisclosed related party transactions for the sale of chrome concentrate at discounted prices.

The good news is that the committee has found that the allegations are unsubstantiated, so this can be put to bed now.

Shipping rates look flat at Grindrod Shipping (JSE: GSH)

Grindrod Shipping’s holding company has given updated disclosure on shipping rates

You have to be careful in taking the disclosure by Taylor Maritime Investments and applying it directly to Grindrod Shipping. Taylor discloses the shipping rates for the combined fleets, so it gives insight into the direction of shipping rates but isn’t a perfect indication of quantum at Grindrod Shipping.

For the six months to September 2023, the time charter equivalent (TCE) was $11,550 per day. Looking ahead to the period ending 31 March 2024, the booked rate is an average of $11,634 per day. We aren’t seeing much of an uptick in shipping rates at the moment, but they aren’t dropping either.

Harmony looks to up its B-BBEE ownership (JSE: HAR)

The company envisages the issuance of convertible preference shares to two holders

Harmony Gold wants to top up its B-BBEE ownership through the issuance of convertible preference shares to the Harmony Gold Community Trust and the Harmony ESOP Trust.

Upon conversion, the shares would represent 0.4% and 2.0% of issued ordinary shares respectively.

The pro-forma effect of these transactions is a 5% decrease in HEPS.

Italtile’s sales are going backwards (JSE: ITE)

Consumer discretionary spending remains very tight

Italtile released a sales update for the five months to November. As you might expect, it notes all the different sources of consumer pressure and the problem of overstocked retailers. On top of this, competition is strong in the sector and margins are under pressure to try respond to the poor demand.

System-wide retail turnover fell by 2.9% in this period and the integrated import supply chain business was also negatively impacted by weaker retail sales. Group manufacturing sales to both group and third-party customers fell 5.9%.

Manufacturing businesses really struggle when sales go backwards, the operating leverage starts to work against you rather than with you. The company has warned that profitability will be negatively affected, but further details aren’t given.

MAS still might not pay dividends until 2026 (JSE: MSP)

This is an ultra-cautious approach to the balance sheet

MAS has released a pre-close update for the six months ending December 2023. Operationally, things sound good. For the four months to October, like-for-like footfall is up 8% year-on-year and trading density increased 7%. Occupancy cost ratios are good and so are collections.

Why, then, is there still no sign of a dividend? MAS recently suspended its dividend because of an incredibly cautious approach to the balance sheet. The company doesn’t like what is going on in the bond market, so they are working towards reducing bond refinancing risk in 2026. Now, looking that far ahead is admirable, but perhaps it really is too conservative here.

With the completion of a tender offer for those bonds, the exposure to the 2026 refinancing has been reduced. The group has repurchased €80.7million of notes at a 9.3% discount to par.

The best forecast is that €76million in debt will need to be raised by May 2026 to achieve the balance sheet objectives. Although the group is well placed for this, they believe that dividend payments cannot be resumed before June 2026 if existing bond conditions persist.

RMB Holdings gives an update on NAV per share (JSE: RMH)

Comparability is limited here due to a change in year end and a special dividend

If it wasn’t for the change in financial reporting period and the special dividend, RMB Holdings wouldn’t have needed to release a trading statement as earnings would’ve differed by less than 20%. This is why the percentage change is misleading.

Instead, the important update is that the net asset value range is between 95 cents and 115 cents. The share price is 57 cents.

Little Bites:

  • Director dealings:
    • Tjaart Kruger has bought another R1.2 million worth of shares in Tiger Brands (JSE: TBS).
    • A director of a major subsidiary of Netcare (JSE: NTC) has sold shares worth nearly R1.7 million and a different director sold shares worth R1.2 million.
    • The chairman of Sibanye-Stillwater (JSE: SSW) has bought shares worth R426k. An independent non-executive director also bought shares worth R109k.
    • Although I’m sure that more announcements of this nature will come through, two directors of African Rainbow Capital (JSE: AIL) have subscribed for shares worth just over R200k in the rights issue.
    • An executive director of Libstar (JSE: LBR) has bought shares worth R101k.
  • There’s some good news at Wesizwe Platinum (JSE: WEZ), with the employees who were staging a “sit-in” protest having returned to the surface at the Bakubung Platinum Mine.
  • Sebata Holdings (JSE: SEB) released a trading statement for the six months ended September 2023. The headline loss per share has deteriorated from -5.27 cents to a range of -9.39 cents and -10.44 cents.
  • African Equity Empowerment Investments (JSE: AEE) has classified its investment in AYO Technology as a discontinued operation. But even with that adjustment made, a trading statement for the year ended August 2023 reflects HEPS from continuing operations of between 0.50 and -0.08 cents, so this could be loss-making even with discontinued operations removed. HEPS from continuing operations was 2.93 cents in the comparable period.
  • Kibo Energy (JSE: KBO) is still trying desperately to get the joint venture for Mast Energy Developments (MED) across the line. After multiple delays, the joint venture partner (Proventure Holdings) has committed to pay the remaining amount between 15 and 20 December. An extension has been granted to allow for this. It really will be a disaster if the joint venture fails to go through after all this effort and so many extensions.
  • Spar (JSE: SPP) has announced the appointment of two non-executive directors. One has a lot of experience in FMCG and marketing and the other is a specialist in big data and artificial intelligence. Although it’s good to see a data push here, they definitely need to just get the basics right.
  • The acting CFO of Kore Potash (JSE: KP2) has resigned. Andrey Maruta has come back into the role, which he previously held between 2019 and 2021 before pursuing another opportunity.
  • Europa Metals (JSE: EUZ) has issued performance shares to directors that represent roughly 3.7% of shares in issue. It’s a pity that the website doesn’t seem to be working!
1...606162...182Page 61 of 182

Focuses on making market news and investment concepts accessible, understandable and fun!

Ghost Mail is free to read

SUBSCRIBE TODAY

Partner with Ghost Mail

CONTACT US

© Ghost Mail

Verified by MonsterInsights