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Ghost Bites (AYO Technology | British American Tobacco | Gemfields | Metair | Nedbank | Rebosis | Schroder Real Estate | Texton | Tharisa | Tongaat Hulett)

The Finance Ghost
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Ghost Bites (AYO Technology | British American Tobacco | Gemfields | Metair | Nedbank | Rebosis | Schroder Real Estate | Texton | Tharisa | Tongaat Hulett)

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

AYO Technology reports much larger losses (JSE: AYO)

This is despite a significant increase in revenue

AYO Technology has released results for the year ended August 2023. Revenue is up 28% thanks to increased revenue in the managed services and unified communications divisions, like Sizwe IT Group. Group gross profit margin fell from 22% to 16% though, so that ate up the benefit. It sounds like margin mix is a major driver here.

Most of the segments are actually profitable, except Managed Services which somehow manages to lose R719 million off revenue of R1.6 billion. Incredible.

Still one of my absolute favourite things about AYO Technology is that they invest some of their excess funds in the stock market. Nevermind returning it to shareholders so they can do it themselves; AYO Technology is quite happy to act like your asset manager and take risk with your capital. Whether or not they make good returns really isn’t the point here. I cannot think of another example where I’ve seen this in a public company when it comes to treasury management.

The headline loss per share deteriorated from -60.25 cents last year to -176.46 cents. Considering they still paid a dividend of 60 cents last year, things must be really bad for the dividend to have gone to zero.

British American Tobacco is pushing harder on non-combustibles (JSE: BTI)

When the entire business model is in flux, why do investors see this as a defensive stock?

I have a fairly unusual view on British American Tobacco, in that I don’t see it as a defensive stock. I simply see it as a company in structural decline, which means dividends probably won’t make up for capital losses. I wrote on this topic just two months ago in Financial Mail and my bearishness turned out to be correct.

On Wednesday, the share price closed 10% lower based on a business update. That dividend doesn’t look so good anymore, does it?

The problem here is that the company needs to push harder to get people off old-school cigarettes and onto non-combustibles which are supposedly healthier. Regulators aren’t overly pleased with those products either, so my suspicion is that British American Tobacco needs to create scale a lot faster in order to make it harder for regulators to take action. This is firmly a “lesser of two evils” product range.

They are talking about “Building a Smokeless World”, which is a stretch even for an ESG team that has managed to make the website look like they sell baby unicorns rather than cigarettes. It’s not exactly a “smokeless” world that we are talking about here, as the plan is for 50% revenue from non-combustibles by 2035.

In an effort to allay some of the fears of investors, the news is that New Categories as a segment will be breakeven in 2023, two years ahead of target. Currently, 10% of the world’s 1 billion smokers use New Category products.

In recognising a massive impairment of £25 billion that is mainly in recently acquired US combustibles brands, the company tries hard to make it sound like this is on purpose because of the push into non-combustibles. They also note macroeconomic challenges in that part of the world, which I suspect is the bigger story.

I am not a smoker, so I don’t pretend to understand the nuances across Vapour, Modern Oral and Heated Products as alternatives to traditional cigarettes. British American Tobacco is particularly strong in Vapour, with decent market share in Modern Oral and Heated Products as well. Heated Products don’t seem to be doing well overall, with growth decelerating.

The bull case here is that British American Tobacco is a cash cow, delivering close to 100% operating cashflow conversion. They have quite a bit of debt though, which isn’t helping things at the moment. Investors believe that the pricing power (through addiction of its customers; let’s not beat around the bush here) is enough to keep the cash dividends growing.

Guidance for full year 2023 is organic constant currency revenue growth at the low end of the 3% to 5% range. EPS growth is mid-single digits.

In a high yield world with businesses that are paying good dividends without all the concerns around long-term prospects, I continue to scratch my head at why anyone owns this stock. Heck, I even made a meme for fun:

Rubies are red; their profits are green (JSE: GML)

Gemfields is enjoying ongoing strong pricing

At a time when diamond prices are under the kind of pressure that makes those stones in the first place, rubies are doing really well. This is good news for Gemfields, which has a 75% stake in Montepuez Ruby Mining Limitada in Mozambique.

The final auction of 2023 has capped off the second highest year of auction revenue in Gemfields’ history. It’s fascinating to look at the pricing at these five auctions (per carat):

  • Dec’21 – $132.47
  • Jun’22 – $246.69
  • Dec’22 – $154.84
  • Jun’23 – $265.99
  • Dec’23 – $290.02

As you can see, gemstone prices are volatile and they aren’t always comparable because of varying quality. There’s also a specific lot that has skewed the June and December 2023 auction numbers. Still, the overall message is one of success and the share price jumped 13% in response.

A weird day of news at Metair (JSE: MTA)

This is the definition of a mixed bag

It’s really not nice to read that Sjoerd Douwenga is stepping down as CEO of Metair for health reasons. He’s a youngster (certainly by CEO standards) and this is most unfortunate news, especially after less than a year in the job. I hope he will be alright.

He’s going to formally step down from 31 January and will be around until the end of March to help with handover. A successor hasn’t been named.

The other bad news is that Rombat (the battery subsidiary in Romania) has received a nasty letter from the European Commission. The letter expresses concerns that manufacturers (including Rombat) may have potentially violated EU anti-trust rules between 2004 and 2017. No further disclosure is possible at this stage and the company has two months to respond. This is only the first step in the dance and is very far from any kind of definitive ruling.

The good news in the announcement relates to Hesto Harnesses, which is a supplier to Ford in South Africa. Ford’s volumes are in line with expectations (no surprise there based on the quality of the new models in my view) and commercial negotiations are making progress. Ford shifted the goal posts during the product design phase and caused much financial pain for Metair’s business. A commercial price adjustment and cash compensation is being negotiated, which would significantly improve the remaining economic profit over the remaining model life.

So, as usual, Metair seems to have mostly bad luck. I genuinely struggle to think of an unluckier company, if you look back over the past couple of years.

Nedbank gets a major boost from Ecobank (JSE: NED)

Africa has been a significant help to local banking groups this year

Nedbank has released a pre-close update dealing with the 10 months to October 2023. It starts off with a reminder that economic growth in South Africa is a huge and worsening headache, with the 2023 GDP growth forecast at just 0.5% (vs. 1.9% in 2022). They do at least anticipate a downward trend in inflation and hopefully a dip in interest rates.

They don’t bluntly say it, but a low growth environment with falling rates isn’t fantastic for banks.

Performance for the 10 months to October is mostly in line with the FY23 guidance given in the interim results.

Net interest income is up by more than mid-teens, with net interest margin consistent with the interim period at 418 basis points. Growth in loans and advances is still decent, but slower than in the interim period. They should end with mid-teen growth for the full year.

Importantly, the credit loss ratio is lower than 121 basis points in the interim period but above the through-the-cycle target range of 60 to 100 basis points. Retail and business banking is where the problem lies, with the other clusters within target ranges.

Non-interest revenue growth is below mid-single digits, with a slowdown in client activity and delays in closure of some renewable energy deals. Insurance income also fell. Guidance for mid-single digits for the full year remains in place, with downside risk.

The positive news is in the Ecobank investment, with Nedbank’s associate income up by a rather delicious 80%. This includes a substantial reversal of an impairment estimate related to Ghanaian sovereign debt.

Expense growth is mid-to-upper single digits, which means that the JAWS ratio should be positive for the full year.

The CET1 capital adequacy ratio is solid, which supports ongoing dividend payments at the top end of the payout ratio.

Return on equity is higher than the 14.2% reported in the interim period, as the group moves closer to the target of 15%.

Rebosis releases a business rescue quarterly update (JSE: REB | JSE: REA)

Although there is a “reasonable prospect” of rescuing the business, how much of it will be left?

I must be honest: as business rescues go, a property fund is surely one of the simpler ones. You basically keep selling properties until you’ve gotten the creditors and overall levels of debt under control. If there is any equity value in there, it takes a lot of digging to find it.

In its obligatory quarterly update, Rebosis reminded the market of sales achieved before 31 August 2023 of R7.6 billion. It’s been pretty slow going since then, with sales of only R160 million.

And of course, being property transfers, these sales take a while to go through.

The business rescue practitioners have managed to preserve the employment of around 75% of affected employees. This has been achieved through engagement with the buyers of the properties.

Schroder Real Estate signs off on a tough year for the NAV (JSE: SCD)

When rates go up, property values come down

Schroder Real Estate has released results for the year ended September 2023. They reflect a difficult year that saw the NAV per share drop by 8.9%, with asset valuations coming under fire in an environment of higher yields and geopolitical risks.

Looking at earnings tells a different story, with earnings up 31% thanks to rental growth and acquisitions, along with a low average interest cost of 2.9% that is 100% hedged against rate movements.

The loan to value ratio is also quite low at 24%, with many funds operating at well over 30%.

If we’ve now seen the top of the rate cycle, the next year should be a lot easier for the group. The company has announced a dividend of 1.48 euro cents per share, payable in January 2024.

Texton: another local stock I won’t touch (JSE: TEX)

The capital allocation strategy is terrible for minority shareholders

When a company raises capital on the markets, the immediate things to look out for are (1) the price of the capital raise vs. what the directors told you the group is worth, and (2) what the proceeds will be used for.

Sometimes, only one of those things is problematic. Occasionally, you get a proper mess that is cause for concern on both metrics.

Texton trades at a large discount to net asset value (NAV) per share, like so many property funds. Where a company like Calgro M3 has done a great job with share buybacks far below NAV (and just look at the effect on the share price), Texton has instead been on an empire-building mission by clutching onto the capital for dear life. Instead of large buybacks, the fund has invested in offshore funds.

It’s very hard to understand why any investor wants to own something with a costly structure and a strategy of redeploying capital into the hands of other investment managers overseas.

It’s going to be even harder to understand that decision after this rights offer at R2.20, when the NAV per share is 619.37 cents. The capital raise is at a 10% discount to 30-day VWAP and a vast discount to NAV per share. That is a big red cross against the first metric given above. As for the second metric I put forward, the capital will be used to reduce debt (they could’ve done that before), support capital projects (ditto) and, wait for it, further fund the group’s capital allocation towards the offshore deployment strategy. I can only interpret this as Texton wanting you to give them money to invest on your behalf in more offshore funds.

The rights offer is non-renounceable and will not allow for excess applications, so there’s another tick in the box for hurting minority shareholders. And best of all, there are underwriters for the portion of the R85 million offer that hasn’t already been committed to, with a 1% fee paid to the underwriters. Those underwriters are Oak Tech Properties and Rex Trueform Group.

This ticks basically every box for hurting minority shareholders and treating them poorly. Texton will never, ever see my money.

Tharisa can’t escape the PGM downturn (JSE: THA)

Earnings for the year ended September 2023 have dipped considerably

In case you’ve been under a rock this year, the platinum sector has been getting hammered. Tharisa enjoys a buffer from its chrome operations, but it still can’t escape the broader pressure of much lower commodity prices.

The group has done what it can in terms of using operational flexibility, like adjusting the timeline for the Karo Platinum project to adjust for weak PGM prices.

In a trading statement dealing with the year ended September 2023, Tharisa noted a drop of between 30.7% and 33.1% in HEPS. This puts HEPS at between 27.5 and 28.5 US cents. The share price closed 2.4% lower at R14.

There’s a sting in the Tongaat Hulett business rescue tail (JSE: TON)

Two new court applications have thrown the whole thing into uncertainty

When I open a court affidavit and see that it is 430 pages long, then my first thought goes to what shiny new cars the lawyers will be buying at the end of this process. Rest assured, the biggest winners of all in these situations are the attorneys and advocates.

In addition to the separate attempts by RCL Foods and the South African Sugar Association to stop the plans in their current form, Tongaat Hulett faced another setback in the form of a rather juicy judgement dealing with the statutory obligations of companies in business rescue. I wish I had the time to read all 74 pages properly, but I enjoyed skimming them. Long story short, the judge didn’t grant an order that allows Tongaat Hulett to avoid settling an industry levy.

So, not only is that a big knock to the financial situation of Tongaat Hulett, but there is now a court process underway that could cause further delays and/or the current plans being declared unlawful. Part of the problem as I understand it is that the levies haven’t been built into the plans, so RCL Foods and the South African Sugar Association want that rectified. You may recall that RCL Foods suffered financial loss as they needed to pay up the additional levies to the association as a result of Tongaat’s non-payment.

This is likely to impact the final distribution of proceeds, assuming one or both of the current deals can go ahead.

The soap opera continues.

Little Bites:

  • Director dealings:
    • The CEO of Omnia (JSE: OMN) received a large vesting of shares and only sold enough to cover the tax. When just the taxable portion was R12.9 million, the remaining amount is a large enough temptation that this counts as a meaningful positive signal on the share in my books.
    • The CEO of Invicta (JSE: IVT) and Dr Christo Wiese seem to be joined at the hip. They each bought shares worth a total of nearly R265k and in two very similarly sized tranches.
    • Various associates of the CEO of Spear REIT (JSE: SEA) transacted in shares, with a net sale of around R34k across the associates.
  • Back in August 2023, Aspen (JSE: APN) announced an agreement with Eli Lilly to distribute and promote Lilly’s products in South African and other Sub-Saharan African countries. All conditions precedent have been fulfilled and it will come into force on 1 January 2024.
  • Southern Palladium (JSE: SDL) released the results of metallurgical test work from the UG2 Reef. It indicates potential 4E PGM recovery rates of 85%. A new Mineral Resource update is due for release shortly. The scoping study for the Bengwenyama project is due for release in January 2024.
  • Calgro M3 (JSE: CGR) has been busy with its share repurchase scheme that has been a wonderful driver of recent share price performance. Used properly, share repurchases are excellent. From 8 August to 4 December, the company repurchased 3.02% of issued shares (calculated based on the date of the AGM in June), with an average price of R3.95 per share. The current price is R4.20.
  • MTN (JSE: MTN) announced that group COO Jens Schulte-Bockum will vacate this role when his fixed-term contract ends in March 2024. He will be replaced by Selorm Adadevoh, an internal promotion. Adadevoh’s current role is as CEO of MTN Ghana, with Stephen Blewet now appointed to that role as another internal promotion.
  • The CEO of Brikor (JSE: BIK) has sold shares worth R18 million under the mandatory offer.
  • Oando Plc (JSE: OAO) is currently involved in a court petition that has been adjourned pending the company filing its scheme of arrangement document.

Ghost Bites (Lesaka Technologies | Marshall Monteagle | RMB Holdings | Shaftesbury | Transaction Capital)

The Finance Ghost
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Ghost Bites (Lesaka Technologies | Marshall Monteagle | RMB Holdings | Shaftesbury | Transaction Capital)

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

Congratulations to Mazars South Africa on their appointment as the auditors of Caxton and CTP Publishers and Printers!

Leadership changes at Lesaka Technologies (JSE: LSK)

It’s time for new leadership to take the group forward

Lesaka announced that Chris Meyer will be stepping down as CEO at the end of February 2024. It sounds like this is a family-driven decision, as Meyer has spent a lot of time away from his family over the past three years in building Lesaka.

Ali Mazanderani will take the role of executive chairman from the beginning of February 2024. That’s not quite the same thing as CEO, but it sounds like it will work that way in practice, at least for a while. He has been on the board since 2020 and has been highly involved in the FinTech strategy.

Along with this change and to ensure that corporate governance requirements are met, Kuben Pillay vacates the chairman role and will instead be appointed as lead independent director. This is important when there is an executive chairman rather than a non-executive chairman.

Marshall Monteagle moves into the green (JSE: MMP)

The market seemed to like this news, with the share price up 8% in early afternoon trade

In a trading statement dealing with the six months to September 2023, Marshall Monteagle announced that HEPS has moved into the green. It comes in at US$2.2 cents per share vs. a loss of US$6.9 cents per share in the comparable period.

Aside from the improved performance on listed equity investments and the interest income earned on group cash, there was also an improved performance from the trading and trade finance divisions.

RMB Holdings has increased its stake in Atterbury Property Holdings (JSE: RMH)

This is due to the issuance of conversion shares by Atterbury to settle the debt

As part of the report on proceedings at the AGM, RMB Holdings announced that Atterbury Property Holdings has issued shares to settle the balance of the loan of R325 million.

The impact of this share issuance is that RMB Holdings now owns 38.5% of Atterbury Property Holdings.

Shaftesbury enjoys the support of several banks (JSE: SHC)

The underlying portfolio cash flows are good enough to support the raising of unsecured debt

Property funds can essentially raise debt in one of two ways: at the underlying property level (like a mortgage that you and I are used to) or at the holding company level without giving specific properties as security. Banks like to be as close to the assets as possible, so the latter is more difficult to raise. It’s also a lot more flexible, which is why funds like them.

Shaftesbury has a good story to tell at the moment about its portfolio in London’s famous West End. A consortium of three banks have happily agreed to lend the company £300 million in unsecured debt with a maturity of three years and the option to extend twice for a period of one year per extension (subject to the approval of the banks of course).

Along with existing cash resources, the proceeds will be used to repay the £376 million balance on an unsecured loan that was arranged as part of the recent merger that the group went through. That loan was due to mature in 2024.

So, Shaftesbury has effectively rolled the facility and has extended the weighted average maturity of its drawn debt to over 5 years without affecting the current weighted average cost of debt of 4.2%. With interest income earned on cash and the impact of interest rate hedging, that cost falls to 3.3%.

Major changes underway at Transaction Capital (JSE: TCP)

The market seemed to like this news, with the share price up 8% in early afternoon trade

For Transaction Capital executives, it must be quite something to watch SA Taxi absolutely blow up at the same time that WeBuyCars is proving to be surprisingly resilient and Nutun is marching on. Such is life as a diversified group, with Transaction Capital now referring to itself as an active investment holding company with its holdings run on a fully decentralised basis. One wonders if an accounting regime change is around the corner, with the group carrying its investments at fair value rather than consolidating them.

There are some significant changes to the group being considered, ranging from the potential introduction of an equity partner in SA Taxi (once restructured) through to an unbundling of WeBuyCars (that’s big news) and a focus on only core operations at Nutun. The head office size has been significantly reduced, which speaks to a decentralised model with Jonathan Jawno taking up the CEO position on 31 December 2023.

So, in terms of how the group is thinking strategically, this is completely different to where they were before SA Taxi disintegrated. Although the announcement makes a point of reminding the market that there are no risks of cross-default, repositioning Transaction Capital as a decentralised group certainly drives that point home.

We may as well start with Mobalyz, which is where you’ll find SA Taxi and GoMo. The latter is barely worth worrying about at the moment and is actually integrated with WeBuyCars, so it surely needs to be restructured under WeBuyCars if there’s a potential unbundling on the table.

The focus in Mobalyz is SA Taxi, which really put the loss in colossal with a headline loss of R3.695 billion vs. headline earnings of R369 million in the prior year. The taxi industry has been smashed by multiple macroeconomic pressures and affordability for new taxis is almost non-existent, so that’s not happy news for Toyota. For SA Taxi, it means that the focus needs to be on financing only pre-owned taxis. This can be a quality renewed taxi (completely repaired) or a pre-owned vehicle that is roadworthy but not refurbished. With this decision having been made, the auto refurbishment and repair facilities will no longer be sold.

For SA Taxi to be viable, the balance sheet restructure will need to be supported by the lenders. This is the old story where you are better off owing the bank a lot of money rather than a small amount, as you’re then swimming in the mud together. The restructuring process is being chaired by Chris Seabrooke of Sabvest, who is a director of Transaction Capital and whose investment holding company is a significant shareholder in the group.

Moving on, WeBuyCars only saw a 14% drop in earnings for the year ended September, which is rather good actually when you consider the strong base and the weak economy. In the second half of the year, earnings were only 4% lower. This was achieved with no further branch expansion in the second half of the year. Interestingly, the B2C business is fueling growth rather than the B2B business, particularly as smaller dealerships are struggling. This suggests that consumers are feeling more comfortable buying from WeBuyCars, with the added benefit of finance and insurance income opportunities that are made possible by B2C sales.

Nutun is a business process outsourcing company focused on debt collection solutions, which is quite ironic given the state of play at SA Taxi. They are growing the “customer experience management services” side of the business quickly, as this is the capital-light side. Simply, Nutun either buys distressed books or manages the collection thereof. The latter is less risky and capital intensive. With attributable earnings from core operations up by 7%, this is a dependable business that is heading in the right direction.

There’s an interesting comment that negative sentiment around SA Taxi has impacted access to funding for Nutun. Although there may not be any cross-default or similar provisions within Transaction Capital, it is true that reputational problems hurt all the businesses. That’s why it is now critical that Transaction Capital finds the best route forward for investors and the underlying businesses.

There are obviously no dividends at the moment. Importantly, there’s also no intention at this stage of pursuing a rights offer.

Little Bites:

  • Director dealings:
    • Another Discovery (JSE: DSY) executive has put in place a sizable collar structure, although it should be noted that it is a replacement of an existing hedge structure. Barry Swartzberg has bought puts at a strike price of R119.56 (downside protection) and sold calls at a strike price of R166.06 (giving up upside in return). The value of the puts is R359 million and the value of the calls is R498 million. The current share price is R135.
    • Chris van der Merwe has sold shares in STADIO (JSE: SDO) worth R5 million in an off-market transaction. This is a sale of 1 million shares and he still has another 6.4 million shares, having been a significant shareholder since listing. The reason given for the sale is the reduction of debt and the restructuring of the family investment portfolio.
    • An executive director of AVI (JSE: AVI) has bought shares worth R3.5 million.
    • The CFO of Old Mutual (JSE: OMU) has bought shares worth R1.3 million.
    • The CFO of Clicks (JSE: CLS) bought R993k worth of shares as part of meeting the company’s minimum shareholding requirement policy. I therefore wouldn’t treat that as a typical purchase of shares that sends a positive signal to the market.
    • An associate of a director of Huge Group (JSE: HUG) has bought shares worth R144k.
  • Coronation (JSE: CML) has released its annual financial statements. They have no changes vs. the reviewed condensed results published on 21 November, but they do have more details for those interested.
  • As part of an update on the cancellation of shares held in treasury, Sabvest Capital (JSE: SBP) made the interesting point that it has reduced its share capital by 25% over the years thanks to share buybacks.

Ghost Stories Ep26: How to really manage your money (with Nico Katzke of Satrix)

The Finance Ghost
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Ghost Stories Ep26: How to really manage your money (with Nico Katzke of Satrix)

Nico Katzke is no stranger to Ghost Mail readers. He has written several articles in his role at Satrix and has appeared on a number of podcasts with me.

In this show, there was more of a cross-over with personal finance than usual. The reality is that if you can’t save every month, then you also can’t invest.

Topics we discussed included:

  • Why does it make sense to treat your own financials like corporates do? And why is the concept of an inflection point in your income so important? How does this unlock guilt-free spending, making your discretionary spend so much more enjoyable?
  • How do entrepreneurs differ from salaried employees in how they take risks with their money?
  • Diversification: a concept that goes way beyond just investing.
  • Nico’s core approach of doing things today that have massive impact in 20 years from now: (1) adjust your lifestyle to your savings amount (and not the other way around; and (2) distinguish between saving and investing.
  • Why the greatest risk to investing is not taking enough risk.
  • As difficult as it is to resist temptation, why avoiding over-consumption can make a huge difference to your future, especially when the marginal benefit of buying the new model car / smartphone / whatever is minimal.
  • The huge danger of using debt affordability tests as a target for how much debt you can take on.
  • The benefit of taking a more active role in how your money is invested, particularly focusing on costs.
  • The importance of being willing to ask your financial advisor questions about your investments
  • An overview of the two-pot system that is due for implementation next year.

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.

Ghost Bites (Alexander Forbes | Aspen | Capital Appreciation | Capitec – Sanlam | Datatec | Ellies | Glencore | Lighthouse | Nampak | Sygnia)

The Finance Ghost
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Ghost Bites (Alexander Forbes | Aspen | Capital Appreciation | Capitec – Sanlam | Datatec | Ellies | Glencore | Lighthouse | Nampak | Sygnia)

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

A juicy jump in the Alexander Forbes dividend (JSE: AFH)

Yet the market clearly expected more, as the share price fell 11.8% on the day

Alexforbes reported results for the six months to September 2023 and they reflect growth in operating income of 13%, with acquisitions (like TSA Administration) doing their bit to help. There were also encouraging signs in the core operations, like client retention and higher average asset balances. The other major acquisition in the pipeline is for 100% of OUTvest from OUTsurance Holdings, with that deal currently going through regulatory approvals and thus not in these numbers.

Profit from continuing operations was up 66%, driven not just by the operating income performance but also by higher investment and other income.

Due to substantial once-off losses in the base from discontinued operations, HEPS from total operations increased by 96%. HEPS from continuing operations was up 68%.

These financial services groups are complicated, so it’s sometimes better to just follow the cash. The interim dividend is up 33% year-on-year to 20 cents. This is obviously a more modest increase than we’ve seen at earnings level, which might explain why the market didn’t seem to like the numbers. I can’t really see what else the market could’ve been upset about. The share price closed 11.8% lower at R5.07.

Aspen agrees to a switcheroo with Sandoz (JSE: APN)

In a game of pharma trading cards, Aspen acquires a business in China and sells one in Europe

Acquisitions and disposals aren’t uncommon events in the market. It’s rare to see a deal like this though, in which Aspen is acquiring a 100% stake in Sandoz China and selling the rights and IP to four anaesthetic products currently sold by Aspen in the European Economic Area to Sandoz.

It’s not a straight swap in terms of value, though. The acquisition price is EUR 92.6 million, with EUR 18.5 million being contingent on the performance of the pipeline products in China. The disposal price in Europe is EUR 55.5 million, with EUR 9.3 million contingent on sales performance. The cash difference will be funded from existing debt facilities.

These transactions are at vastly different revenue multiples. The Chinese acquisition adds R1.8 billion in annual sales to Aspen and the European disposal takes away sales of just R280 million. It’s therefore not hard to see why Aspen describes this as being part of its volume-based procurement strategy. It’s also an important strategic foothold in China, with the simultaneous benefit of allowing Aspen’s European management to focus on its remaining products in the region.

The entire deal (both legs) is dependent on the Chinese competition authorities giving the green light. That is expected to be achieved in the second quarter of 2024.

Sandoz was recently spun off from Novartis and is separately listed on the SIX Swiss Exchange.

The deal is not categorised under JSE rules and this is a voluntary announcement. In other words, there’s no shareholder vote.

Capital Appreciation’s EBITDA has had a wobbly (JSE: CTA)

Technology margins are taking strain

It’s more than slightly interesting to compare Capital Appreciation to PBT Group, which I wrote about yesterday. Although they have only small overlap in their businesses, this relationship between revenue and EBITDA over the past few years is remarkably similar:

The Software division is feeling the worst of the margin squeeze, as revenue on new projects was delayed and there was a period in which the group had increased capacity for those projects and incurred expenses. In Software, revenue was up from R220 million to R288 million, yet EBITDA fell from R46 million to R40 million.

In Payments, revenue actually fell sharply from R318 million to R265 million (mainly due to lower sales of terminals), but EBITDA was incredibly resilient at R118 million vs. R120 million. This talks to the annuity income base in that business.

Excluding the expected credit loss raised in the base period, HEPS is down by 6.4%. In this chart, you can clearly see how they were conservative with the dividend per share relative to HEPS, allowing for a steady dividend despite a drop in profits:

I must highlight the 21% growth in international revenue to R77.3 million, providing further evidence that South African skills can compete globally. Of course, our professionals are also a far cheaper resource than their counterparts in places like the US and UK. This business is structured as a small team in the Netherlands, supported by resources in South Africa.

One of Capital Appreciation’s party tricks is a debt-free balance sheet that has R500 million worth of cash for acquisitions and organic growth opportunities.

Capitec has taken the step to write its own funeral policies, terminating the agreement with Sanlam (JSE: CPI | JSE: SLM)

This is a significant show of intent by Capitec

Capitec, Sanlam and Centriq Life Insurance have been co-operating since 2017 on the sale of life insurance policies. Capitec has elected to terminate the agreement once it reaches the end of its 7 year term in October 2024. This will trigger a payment of R1.9 billion to Sanlam in the form of a “reinsurance recapture” amount for its 30% participation in the product agreement.

Capitec Life, a newly licensed insurer in the Capitec group, will take over the administration of the in-force book and will write new business on its own license. Policies in-force on termination date will remain in the Centriq cell captive and will be transferred to the Capitec Life license at a later date.

This is a significant step forward for Capitec and not one that is without risk. I suspect that Sanlam will be upset about this one, as the distribution power of Capitec gave Sanlam the ability to participate in policies that it would’ve struggled to sell otherwise. This is exactly why Capitec would’ve seen the opportunity to bring that economic profit pool in-house.

Datatec takes a bigger stake in Mason Advisory (JSE: DTC)

If the name sounds familiar, it’s because this was spun out of Analysys Mason some years ago

If you’ve followed the Datatec story in any degree of detail, then you’ll know that the group disposed of a business called Analysys Mason. Long before that disposal, Analysys Mason unbundled a business called Mason Advisory in 2014. This group services clients that are consumers of IT rather than providers or regulators. Datatec has held a 40% stake in Mason Advisory ever since.

Datatec clearly likes the business, as the group is acquiring a further 40% in it, taking its holding to 80%. The stake is being acquired form the management team. With over 100 employees, the business is big enough that Datatec can feel comfortable about having a less aligned management team.

The deal value hasn’t been announced as this is a voluntary update. All we know is that it will be funded from existing cash resources.

Ellies finally gives an update on the Bundu Power deal (JSE: ELI)

This transaction is probably the saviour of the company

Way back in February 2023, Ellies announced a deal for the acquisition of Bundu Power for up to R207.6 million. In June, there was talk of a rights offer of R120 million. Then, things became uncertain.

It seems as though Ellies has been hustling in the background to try and raise capital, as the surprising news is that the entire acquisition is being funded by debt. There is no longer going to be a rights issue!

Also, they’ve managed to defer some of the purchase price, with tranches of R26.3 million due within 60 days of the end of February 2024 and 2025. This means that roughly 25% of the purchase price has been spread out, although I would remind you that February 2024 is actually around the corner.

My concern here is that the purchase price of Bundu Power isn’t exactly at a bargain multiple, as profit after tax was R32.4 million for the year ended February 2023. Before you wonder if there is incredible growth in profits thanks to load shedding, the profit after tax for the year ending February 2024 is R33.94 million. That’s a pretty flat performance.

We don’t know yet what the debt cost is, but I suspect that there isn’t a huge amount of daylight between profits and interest costs. If anything goes wrong in the deal, Ellies can get into huge trouble, especially as the sellers of Bundu Power have been granted a call option to repurchase the shares if Ellies fails to pay any amounts due.

This is a Category 1 transaction, so shareholders will need to vote on it and a circular is expected to be distributed by 31 January 2024.

The simple reality is that this deal is do-or-die for Ellies. If it goes wrong, I believe that this is the end for the group and there will need to be a rights issue (or worse – business rescue). By funding it with debt, they are rolling the dice one last time.

For those who enjoy high-risk speculative plays, this makes Ellies interesting.

Glencore closes the Alunorte and MRN deals (JSE: GLN)

These deals were first announced in April 2023

Corporate transactions take a while to close. Mining deals can take even longer, depending on the underlying regulatory environment.

After announcing these transactions in April 2023, Glencore has closed the deals that sees it invest alongside Norsk Hydro ASA to acquire 30% in Alunorte S.A. and 45% in Mineracão Rio do Norte S.A. (MRN).

Although Glencore will not be the operator of either assets, it will have offtake rights for the life of mine in respect of its pro rata share of production.

Lighthouse is on track to meet earnings guidance (JSE: LTE)

This pre-close update deals with the year ending December 2023

You’ve seen the name Lighthouse Properties come up a million times in the director dealings section in Ghost Bites, as Des de Beer buys shares on a regular basis and other directors also dip in from time to time. For once, this update is about the company rather than transactions in the shares!

A pre-close update gives us insight into how the group is performing. In France, footfall is up 13.3% and sales are up 10.1%. It sounds like the letting environment is positive. In Slovenia, footfall is up 8.1% and sales are up 8.9%. In Spain, the group has entered into exclusivity for the acquisition of a shopping mall. If all goes well, that deal will close in February 2024.

That deal will be funded by a mix of debt and the proceeds of the sale of Hammerson shares. The loan-to-value after that acquisition will increase from 15.1% to 24.4%. Speaking of the Hammerson disposal, since H1 2023 Lighthouse has raised EUR 63 million in cash from selling shares. The holding in that company has been reduced from 22.05% to 17.98%.

The board has reaffirmed its distribution guidance of EUR 2.70 cents per share for the 2023 financial year.

In a separate announcement, Lighthouse announced the sale of a further R936 million worth of shares in Hammerson. I worked back through recent announcements and it feels like this is in addition to the sales referenced in the pre-close announcement. I’m just not sure why they didn’t simply bundle these sales in with the rest that were disclosed!

The naira knocked Nampak – and so did the kwanza (JSE: NPK)

Forex issues in Africa remain a huge concern

Fresh from its equity capital raise to save the group, Nampak has released results for the year ended September 2023. They reflect a 2% drop in revenue and a 2% increase in trading profit.

None of that really matters, as the big story is in forex losses and net interest costs.

Trading profit of R1.6 billion disappears quickly when forex losses in Angola and Nigeria come to R1.2 billion. Operating profit before impairments was just R276 million. After impairments, there’s a loss of nearly R2.6 billion.

It gets even worse, as we haven’t considered funding costs yet. They come to R1.2 billion, more than double the prior year thanks to outrageous refinancing advisory costs of R335 million. Although the advisory costs are a once-off, it’s still a ridiculous number. The group raised R1 billion in rights offer and spent R40 million on the costs of the rights offer and then another R335 million on refinancing advisory costs.

The headline loss is R1.6 billion, which is a frightening number compared to headline earnings of R229 million in the prior period.

Nampak is both a going concern and an ongoing concern in my books, as raising R2.7 billion through asset disposals in the next 18 months is key to its sustainability. One wonders what the advisory fees on those transactions will be.

The rights offer was priced at R175 and the share price is at R165, so those who supported the rights offer are already in the red.

Sygnia goes sideways (JSE: SYG)

Despite assets under management and administration up 11.6%, the dividend is flat

Sygnia CEO Magda Wierzycka wastes no time in her report on the earnings for the year ended September. Within the first paragraphs, she gives the media everything they want by lambasting South Africa and calling it “more and more irrelevant” on the global stage. That must do wonders for motivating the South African staff.

Assets under management and administration increased by 11.6% to R318 billion, with the retail business attracting net inflows of just R1 billion vs. R5.3 billion. I think that positive net flows is still a commendable performance in this environment. ETFs among institutional and retail customers experienced net outflows.

For all the complaining about how the government manages its affairs, Sygnia allowed its expenses to grow 7.9% at a time when revenue increased by 4.3%. Weirdly, one of the reasons given is the resumption of business-related travel. How much can you possibly need to travel in this business?

HEPS increased by 4% and the dividend is flat at 210 cents. That’s not a bad performance overall, but I do have questions around that cost growth in what is supposedly a low-fee investments business.

Little Bites:

  • Director dealings:
    • As the person entrusted with the turnaround of Tiger Brands (JSE: TBS), it’s good to see Tjaart Kruger putting his own money behind it. He has bought R3.8 million worth of shares in the company.
    • Here’s a fun one: Neal Froneman exercised a put option to sell shares in Sibanye-Stillwater (JSE: SSW) at a strike price of R45.98. This was part of an equity funding arrangement with a financial institution. The current price is R21, so that put option (the right, but not the obligation to sell shares) was solidly in the money. That sale was worth R218 million. Separately, an independent non-executive director bought shares worth R292k.
    • The CEO of Invicta (JSE: IVT) has bought shares worth R363k and Dr Christo Wiese also bought shares to the value of R394k.
    • The CEO of RH Bophelo (JSE: RHB) has bought shares worth R393k.
    • A director of KAL Group (JSE: KAL) has bought shares worth R184k.
  • ADvTECH (JSE: ADH) has announced that CEO Roy Douglas will step down from the board with effect from 29 February 2024. Geoff Whyte has been announced as his replacement, bringing experience gained in organisations as varied as Unilever, PepsiCo, SAB-Miller and Nando’s. This is an interesting appointment of an executive who is clearly an expert in FMCG.
  • Unitholders in Oasis Crescent Property Fund (JSE: OAS) were able to choose between a cash distribution and a share distribution. 65.51% of holders elected to receive a cash distribution and the rest were happy to receive more units.
  • MAS P.L.C. (JSE: MSP) is working on its balance sheet, inviting holders of the EUR 300 million 4.25% guaranteed notes due 2026 to tender them for purchase by the company. In other words, this is an early redemption at the option of the holder. MAS is either reducing its overall debt or restructuring it.
  • City Lodge Hotels (JSE: CLH) confirmed that the odd-lot offer price is R4.7023454, being a 5% premium to the 30-day VWAP as at the close of business on 1 December. The current share price is R4.56. This allows holders of fewer than 100 shares to let them go at a slight premium to the current price, but we are talking less than beer money here. Remember, the default is that your shares will be sold if you own fewer than 100 of them.
  • One has to wonder why Telemasters Holdings (JSE: TLM) is bothering with a dividend at all, since the declared amount is 0.001 cent (not cents, but cent) per share. The share price is R0.75.
  • Chrometco Limited (JSE: CMO) has renewed the cautionary announcement relating to a material subsidiary of the company.

Ghost Bites (AYO Technology | Brimstone | Fortress | Kibo Energy | PBT Group | Quantum Foods | Sibanye | Tiger Brands)

The Finance Ghost
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Ghost Bites (AYO Technology | Brimstone | Fortress | Kibo Energy | PBT Group | Quantum Foods | Sibanye | Tiger Brands)

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

AYO Technology is even more loss-making (JSE: AYO)

Unsurprisingly, the group is getting worse

It’s hard for me to understand why anyone would ever invest in AYO Technology. Reputational problems aside, even the numbers are terrible. For the year ended August 2023, the headline loss per share got a lot worse. In a trading statement, the company guided that the loss has moved from 60.25 cents to between 171.36 cents and 183.41 cents.

The share price, by the way, is just 80 cents.

The increased loss is due to lower gross margin in the operating companies, fair value adjustments on investments and other issues like derivatives.

Brimstone’s intrinsic NAV keeps moving lower (JSE: BRT)

Many of the investments have taken a knock since December 2022

Brimstone Investment Corporation has released a quarterly update to its intrinsic net asset value (NAV) disclosure. As an investment holding company, the intrinsic NAV is basically the directors’ opinion on what the portfolio is worth.

The market’s opinion is reflected in the share price, which sits at R5.40 vs. the fully diluted intrinsic NAV per share of R12.48. The discount to intrinsic NAV tends to be between 50% and 60%. The JSE is a tough place for these groups.

The intrinsic NAV per share has dropped 3.7% between December 2022 and September 2023. The growth in Oceana was largely offset by Sea Harvest, with those positions contributing a combined 75% of the portfolio. They’ve also taken big knocks in Equites (the listed property group) and Phuthuma Nathi, the MultiChoice B-BBEE scheme.

The direction of travel for intrinsic NAV has been lower for the past few years. It’s down 6% since December 2019.

The local logistics portfolio remains the backbone of Fortress (JSE: FFA | JSE: FFB)

Don’t forget that there’s a proposal on the table to deal with the dual-share class structure

Fortress Real Estate (not Fortress REIT – it lost that status, as you may recall) has released a pre-close update dealing with the months since the June 2023 year-end.

The highlight is the South African logistics portfolio, with record low vacancy of 0.5% by rental. They’ve been recycling capital through disposals of non-core properties. There’s a comment in the result that makes it sound like selling properties at decent prices is getting harder, so they are happy with the sales achieved in recent months.

The Central and Eastern European logistics portfolio has seen its vacancies increase from 3.9% to 6.4%. The increase is attributable to two buildings, so it shows how lumpy vacancies are in logistics vs. say a retail portfolio with many shops.

Speaking of retail, vacancies are down from 1.5% to 1.3% and tenant turnover is up 7.2% on a rolling 12-month basis.

In the industrial portfolio, vacancies were up from 6.8% to 7.8%. The group notes that there is still strong demand for well-located smaller industrial properties.

The office portfolio remains a mess, but is luckily less than 4% of total assets in the fund. Vacancies are up from 22.3% to 23.1% and they seem to be experiencing some luck with getting offers for properties.

The loan-to-value ratio is 35.5%, which is a decent level for any property fund.

A potentially big setback at Kibo Energy (JSE: KBO)

When a deal starts getting weird, it often ends in tears

If you’ve been keeping an eye on Kibo Energy, you’ll know that the group’s subsidiary in the UK (Mast Energy Developments) has been trying to put a joint venture together. The partner is Proventure Holdings. Well, the theoretical partner at least. In order to get the deal done, Proventure actually needs to pay across some money. That’s where things have been getting weirder and weirder.

For months now, we’ve been listening to silly excuses about why Proventure can’t pay. Frankly, I did think that Kibo sounded a bit naive about all this. Good partners don’t miss payment dates, especially not repeatedly. The latest long-stop date has been missed and it sounds like reality is dawning on Kibo, as they’ve now given Proventure 7 days to remedy the situation.

Even if the money arrives, that’s a terrible way to start a relationship. If it doesn’t arrive, there are theoretically penalties paying, but that’s a process in court to recover them.

There’s a simple lesson here: when deals start to get strange and partners get the basics wrong, there’s a very high chance that everything will fall over.

Where will the growth come from at PBT Group? (JSE: PBG)

Things are definitely tougher in a post-pandemic environment

PBT Group is one of the best local small caps. The business model is good and the company behaves like a much bigger company, evidenced by a proper reporting strategy that includes a bunch of really useful KPIs. In a market where some small caps think a trading statement and final results should go out 2 hours part, it’s always refreshing to take a look at PBT Group.

For example, they do the hard work for you with charts like these:

It’s really great to be able to just eyeball what’s going on here. If you do detailed research on companies, charts like these are worth doing for yourself.

The 5-year Compound Annual Growth Rate (CAGR) is much higher for EBITDA than for revenue. That means the group has achieved substantial margin expansion. If you look over the past couple of years though, there’s a different story. Despite revenue being R78.7 million higher in 1H24 than in 1H22 (R547.4 million vs. R468.7 million on the top left chart), EBITDA is only R2.9 million higher. All the margin expansion over the past five years happened right in the beginning, with the post-pandemic period reflecting a difficult operating environment where they are struggling to maintain the current level of profits.

What certainly hasn’t helped is the PBT Australia business, which contributes roughly 5% of revenue and still makes a loss. Due to difficulties in making progress in that market, PBT will sell that business to its management team.

Another important point is that the software business in which PBT holds a 58% stake outperformed the wholly-owned subsidiaries. Even though the profits from that business are consolidated into PBT’s numbers (i.e. 100% of its revenue and operating profits), the adjustment at the end for non-controlling interest is what really matters. Simply, when you look at PBT’s income statement for this period, there’s a larger proportion going to minority shareholders further down in the structure than before. This is part of why normalised HEPS has dropped by 4.3% to 31.4 cents.

This is a well-managed company that is dealing with the same issues in South Africa that so many other companies are dealing with. It looks like the share price got too far ahead of itself during the pandemic, with this chart now looking rather dangerous:

Quantum Foods is proof that margins are everything (JSE: QFH)

This is exactly why looking at only revenue multiples is foolish

Imagine sitting down at a piano. All the keys together make up the financials of a company. If you only look at revenue, you’re judging the entire piano based on what one octave sounds like. That’s a silly way to play or buy a piano. It’s also a silly way to buy shares.

Now, I don’t think anyone looks at just revenue multiples in the poultry industry, so this isn’t a comment on Quantum Foods specifically. It’s just a lesson in margins, as a company can grow its revenue and still suffer horrible numbers. Read on and see why.

For the year ended September 2023, Quantum managed to grow revenue by 15.5% to R6.95 billion. Sounds great, doesn’t it? Sadly, the operating loss is R35 million, down from operating profit of R37 million.

The highlight was the Animal Feeds division, which contributes just under half of revenue. It made an operating profit of R104 million. Here’s a quote from the result that says it all about South Africa, really:

“Whereas c. 70% of maize was delivered to the Malmesbury mill by rail seven years ago, we now deliver more than 80% via road due to the failing rail infrastructure in the country. This had a significant impact on transport costs over time.”

The Farming business was smashed by avian flu and other problems, so revenue of R1.8 billion (up 15.2%) couldn’t generate a profit. The operating loss was R80 million. If you dig a bit deeper, you’ll find that the biological asset write-off because of the avian flu was R155 million.

The Eggs business had a horrible time. Revenue fell 2.1% to R1.3 billion and the adjusted operating loss was R42 million. The highlight here is that conditions had started improving in May in terms of pricing and feed costs, but then along came the supply problems from avian flu.

The rest of Africa also struggled, with revenue of R443 million and an adjusted operating loss of R1 million.

In summary, this year would’ve probably turned out alright were it not for the flu outbreak. This is a major business risk in poultry at all times, but the industry did get particularly unlucky this year. Although the outbreak has impacted the start of the new financial year as well, FY24 will hopefully be a better period for Quantum.

Sibanye concludes retrenchments in the gold operations (JSE: SSW)

Thankfully, quite a few jobs were spared in the end

Back in September, Sibanye-Stillwater announced a restructuring of its SA gold operations, particularly at the loss-making Kloof 4 shaft.

Initially, 2,389 employees and 581 contractors were due to be affected. Through natural attrition at other operations, 1,057 employees took up roles elsewhere. 31 employees left during the process, which made life easier for the company. 176 employees and 26 contractors will retain their jobs temporarily for the decommissioning phase of the mine. 550 employees took up voluntary separation packages or early retirement, as were 348 employees elsewhere.

With all said and done, 575 employees could not be accommodated elsewhere and didn’t take the other agreed avoidance measures, so they are being retrenched. All the affected contractors are also being retrenched.

A tiger on the revenue line; a kitten further down (JSE: TBS)

Tiger Brands cannot maintain its margins

The good news at Tiger Brands is to be found right at the top of the income statement for the year ended September 2023. I was impressed that volumes are only down by 2% in a period when price inflation was 11%. Once you factor in those elements as well as forex gains, revenue increased by 10%.

If we dig a bit deeper, we find that volume growth was only in the export business. The domestic business suffered a decline in volumes, so that makes sense based on what I’m seeing around me.

Despite supply chain efficiency improvements, gross margin fell from 30.3% in the prior year to 27.7% this year. Combined with retrenchment costs this year and lower insurance proceeds than last year, operating income fell by 9% despite the juicy jump in revenue.

A useful contribution further down the income statement came from income from associates, which increased by 46% to R697 million. A large portion of this was due to a change in functional currency at National Foods from Zimbabwean Dollars to US Dollars.

A far more “real” issue to look at is net financing costs, which ballooned from R75 million to R238 million. This was driven by higher interest rates, more working capital and of course a reduction in cash because of the R1.5 billion share buybacks.

With all said and done, HEPS managed to limp higher by 2% and the final dividend is 3% higher. The total dividend of 991 cents puts Tiger Brands on a dividend yield of 5.5%.

If you read the outlook section, this company is firmly on the defensive in this environment. It’s all about cutting costs and rationalising the product range. Right at the end, they talk about growth in the informal market and in certain categories. One of them is hilariously called “snackification” – an excellent example of a made-up word in corporates.

There’s a new management team in charge to deliver on that strategy. Thushen Govender as been appointed as CFO as an internal promotion. You may recall that the company recently announced the appointment of Tjaart Kruger as CEO, seen by many as a turnaround specialist.

Little Bites:

  • Director dealings:
    • Calibre Investment Holdings, related to a director of Ascendis (JSE: ASC), has bought shares worth R24.9 million.
    • Collins Property Group (JSE: CPP) announced that Christo Wiese bought R8.8 million worth of shares on 28 and 29 November and then sold R5.4 million worth of shares on 30 November in an off-market trade. Although the announcement isn’t explicit, it looks like associates of the Collins family bought the shares in the off-market deal.
    • The CEO of Spear REIT (JSE: SEA) is buying more shares in his family investment vehicles, this time to the value of R89k.
    • A non-executive director of Richemont (JSE: CFR) bought warrants for A shares with a value of R36k.
  • African Equity Empowerment Investments (JSE: AEE) has made a change to the structure of its offer for an attempted take-private of the company. Instead of an offer to shareholders and subsequent delisting vote, this will now be a scheme of arrangement, still at a price of R1.15 per share. If the scheme is passed, a delisting would go ahead.
  • After a few difficulties along the way, Brikor (JSE: BIK) has released the mandatory offer circular relating to the offer by Nikkel Trading 392 for the shares it doesn’t own in the company. Nikkel currently owns 68.01% of the shares. In the end, the CEO of the group changed his mind about not accepting the offer. He has now indicated that he will be taking it. This puts a lot of pressure on other shareholders to accept, as there’s little point in not being aligned with the CEO. The offer price is 17 cents per share. If Nikkel holds 90% of the shares after this offer, then a squeeze out can be used under s124 of the Companies Act to force remaining shareholders to sell. You’ll find the circular here.

Son of a cymbal maker: lessons in succession from Zildjian

Dominique Olivier
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Son of a cymbal maker: lessons in succession from Zildjian

It’s not often that a business outlasts an empire. 400 years and 15 generations later, the Avedis Zildjian company is still making a beautiful noise.

Whenever I’m stuck for conversation at a dinner party, I like to ask the person that I’m speaking to if they can name any of the oldest family-run businesses in the world. It’s an unconventional way to get a conversation started, sure, but it always gets interesting results.

Many people will guess the names of oil giants (sorry, too new) or diamond miners (nope, too volatile). Some will hazard a guess at wineries (clever – there is actually a French winery that was operated by the same family for 1000 years). One memorable lady once told me about a Japanese spa hotel that was established in the year 705 and run by 52 generations of the same family before it was taken over by an “outsider” in 2017 (imagine being that guy).

But no-one ever guesses a company that makes cymbals. And that’s why I like to tell people about the history of Zildjian.

There’s a market for noise

The Zildjian story starts in 1618, in what is now known as Istanbul but was then called Constantinople. An Armenian metalsmith and alchemist named Avedis was working in the court of the Sultan of the Ottoman Empire when he came across a way to shape an alloy of tin, copper, and silver into a sheet of metal. Popular anecdotes have it that Avedis was trying to create gold – but instead he created a thin metal that could make musical sounds without shattering.

Sultan Mustafa I was so impressed by Avedis’ invention that he officially granted him the surname Zildjian, which translates to “son of a cymbal maker”, thereby ensuring that Zildjian’s invention would be intrinsically linked to his bloodline. In 1623, Avedis was granted permission to start his own business outside of the palace.

Ottomans of the day had many different uses for cymbals: for starters, there were the Ottoman military bands, who relied on cymbals to make noise that would intimidate their enemies on the battlefield. Cymbals were also used in the services of Greek and Armenian churches, and (on quite the opposite end of the spectrum) by the belly dancers of the Sultan’s harem. So while Avedis’ business operated in a very particular niche, there was no lack of demand for his products.

When the original Avedis passed away, his business and the secret formula for his unique alloy were passed down to his son. And so started one of the most successful succession stories in the history of business.

A harsh clashing of ideas

For 356 years, the descendants of Avedis Zildjian guarded his secret alloy formula and kept his business going strong, despite such challenges as an Armenian massacre, the exile of the head of the family, World Wars 1 and 2, the family’s emigration to the United States, and the Great Depression. 9 generations of Zildjians built on their forefather’s legacy – until the 10th threatened to tear it apart.

Following the death of Avedis the Third in 1979, an acrimonious dispute developed between his sons, Armand and Robert, While Armand was the eldest and the rightful heir to the business, Robert insisted that he was the better businessman. The dispute was settled (on paper, at least) after two years in court, with Armand being granted ownership of the company’s main factory in Massachusetts, while Robert was given the secondary, smaller factory in Canada.

Determined to do things his way, Robert broke away from the family business and used his factory to start a new line of cymbals. This was the birth of the Sabian brand, which would rise to become one of Zildjian’s main competitors for the title of largest cymbal-maker in the world.

Armand and Robert passed away in 2002 and 2003 respectively. Both Zildjian and Sabian have continued to be run exclusively by members of the Zildjian bloodline since then. Between them, these two cymbal brands have cornered more than 65% of the market.

Finding success in succession

Legend has it that the founder of Zildjian was trying to create gold when he stumbled across his proprietary alloy formula. I sometimes wonder how he would feel if he could see the brand that was built on his name celebrating 400 years in business this year. I reckon that legacy is worth more than gold.

So, why did succession work for Zildjian, when it led so many other businesses to failure?

There’s no recipe that guarantees longevity in a business – there are just too many variable factors like brand power, global disasters, technological innovations and the ability to move with the times. That being said, I do think that the Zildjian family has made some smart decisions over the years.

For starters, the secret alloy formula at the heart of the business has stayed a family secret to this day. The Zildjians who do know it are prohibited from sharing it, even with their spouses. As far as this business is concerned, that formula is their main IP, and they’ve guarded it extremely well.

Secondly, Zildjian believes – really believes – in the power of the bloodline. While the business was transferred from male heir to male heir in the early years, in the early 1900s, when the main male heir was exiled, the business was transferred to his daughter instead of to an outsider. Victoria Zildjian was the first female in the family to run the factory, but she wasn’t the last. When it comes to passing the baton, Zildjian favours family over all else.

While staying true to the original nature of the business, Zildjian has also been pliant enough to move with the times and innovate. As you can imagine, making the leap from supplying instruments of war to instruments for rockstars took some careful navigating. Historically, Zildjian has relied on those who use their products – musicians – to collaborate with them and inform them on the innovations that were needed. Musical legends such as Ringo Starr and Gene Krupa have worked closely with the brand to develop specific lines of cymbals for particular genres of music.

Reading the descriptions of board members’ careers on the Zildjian website, you soon notice a familiar pattern. A Zildjian descendant will study a discipline of their choice and find work out in the world that has little or nothing to do with cymbals – but they will stay on the board, with their finger firmly on the pulse of the business. This ensures that the business doesn’t become trapped in a vacuum, as fresh ideas and insights are constantly being introduced from the outside world.

I’ll close with my favourite anecdote about this business, which I read in an interview with Zildjian’s current CEO, Craigie Zildjian. During the interview, Craigie’s four-year-old granddaughter Emilia – a member of the 16th generation of Zildjians – came to sit on her grandmother’s lap. “Are you going to work in the factory one day, Emilia?” Craigie asked her. Without hesitation, the little girl answered “Yes!”

Maybe there is something special in the Zildjian bloodline. Or maybe they’re just really good at linking business with family pride. Either way, I think it will be a really long time before we encounter a family business quite like this one again.

About the author:

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

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

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

Ghost Wrap #56 (Purple Group | Spar | Pepkor | Bidvest | Attacq)

The Finance Ghost
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Ghost Wrap #56 (Purple Group | Spar | Pepkor | Bidvest | Attacq)

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 recapped five important stories on the local market:

  • Purple Group may be loss-making, but the revenue resilience in a near-impossible year is a strong tick in the box for this story.
  • Spar has hopefully signed off on the worst year that the company will ever experience, with several own goals and the suspension of dividends.
  • Pepkor has a reputation as a defensive retailer, but that doesn’t seem appropriate based on the underlying businesses.
  • Bidvest gave the market a fright with its recent commentary about pricing pressure, leading to a sharp correction in the share price.
  • Attacq is an excellent reminder that the old adage of “location, location, location” applies to REITs as well.

Ghost Bites (Castleview | Copper 360 | Hudaco | Huge Group | Hyprop | Lewis | Lighthouse | Mahube | Purple Group | Reinet | Resilient | Salungano | Spar)

The Finance Ghost
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Ghost Bites (Castleview | Copper 360 | Hudaco | Huge Group | Hyprop | Lewis | Lighthouse | Mahube | Purple Group | Reinet | Resilient | Salungano | Spar)

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

Castleview releases its first interim results in current form (JSE: CVW)

The substantial injection of assets was only in the second half of last year

Castleview’s results are not comparable at all against the prior interim period, as the acquisition of the I Group portfolio took place in the second half of the 2023 financial year. The interim results to September 2023 thus reflect that portfolio and the comparable period doesn’t.

Instead, we should just focus on the current numbers, like the net asset value of R8.40. The current share price is R8.50 but there is basically no liquidity here, so the similarity of share price to net asset value reflects the injection of assets in exchange for shares.

The interim distribution is 10.676 cents and the loan-to-value is 48.4%.

Copper 360 targets EBITDA of over R650 million in FY25 (JSE: CPR)

Spreadsheets are easy; execution is hard

Copper 360 is off to a decent start as a listed company. With results now out for the six months to August, the company is still all about the narrative rather than anything else. Junior mining requires many leaps of faith in the construction phase.

The important thing to remember is that the Measured and Indicated Mineral Resource statement shows that copper at Rietberg Mine is higher than originally though. This requires R95 million more in capital for construction, but it also takes the FY25 EBITDA forecast from R360 million to R570 million.

Once you add in the recently announced Nama Copper deal, the EBITDA target for FY25 moves to at least R650 million.

It’s not all good news, though. If you read all the way down the announcement, you’ll find that copper recovery was only 43.5% vs. 71%. That’s a long way off plan, driven by inefficient crushing (leading to the decision to bring that in-house rather than rely on a contractor) and a fine materials recovery process that needed work.

The market cap is R2.5 billion. It feels to me like too much of that FY25 EBITDA target is already priced in here.

Hudaco announces a local bolt-on acquisition (JSE: HDC)

The group is acquiring Plasti-Weld for R56 million

This is a small transaction and hence a voluntary announcement, so don’t get too excited about the level of detail coming your way. For example, we don’t know what valuation multiple has been paid by Hudaco for this acquisition.

What we do know is that Plasti-Weld imports and stocks plastic welding equipment and other tools. It also manufactures plastic welding rod and has 15 staff, all based in Gauteng.

Hudaco believes that this is a good fit for the engineering consumables segment, specifically as a bolt-on acquisition to the thermoplastic pipes and fittings business, Astore Keymak.

The purchase price has been based on three years’ worth of historical profits as well as profits for the first year after the effective date. The maximum purchase price is R56 million, which suggests that there is an earn-out structure here.

The deal will be funded in cash by Hudaco.

Huge Group: covering themselves in glory once more (JSE: HUG)

The latest own-goal is the release of a trading statement and results on the same afternoon

The concept of a trading statement is clearly understood in the market, yet there are always companies that embarrass themselves by releasing a trading statement and full results either a few days apart or, much worse, on the same day.

A trading statement is supposed to be an early warning that results will be materially different from the comparable period. It’s completely daft to release a trading statement early in the afternoon and then full results later that day, as the trading statement gives an expected range and the results give exact numbers.

This isn’t Huge Group’s first blunder in the market, so I’m not really surprised to see this. You may recall their disastrous attempted acquisition of Adapt IT. I don’t take the company very seriously and neither does the market, with a share price of R2.10 on a net asset value (NAV) per share of R9.60. The company sees itself as an investment holding company, so the NAV per share is theoretically the fair value of the underlying portfolio. The NAV is up 2.3% year-on-year.

As a final comment, around 40% of the investment portfolio is attributed to preference shares in Huge Connect. Hilariously, these are valued based on a required rate of return of 10%, which is lower than the SA Government bond rate. I would value them on a required return much higher than that, which would bring the NAV down significantly. This is just one reason why the NAV per share and the share price live in different postal codes.

In reality, I suspect that the share price is at a discount to a plausible NAV. I just don’t think the fair value is anywhere near R9.60 per share.

I can see consumer weakness in the Hyprop numbers (JSE: HYP)

Just look at the trend in monthly trading density vs. last year

The Hyprop pre-close update dedicates many paragraphs to giving examples of stores that have opened in the malls. You can safely ignore all of that, as it tells you nothing about financial performance.

Here’s the table that matters, showing how growth in tenant turnover and trading density (sales per sqm) almost disappeared in October vs. previous months:

Vacancies and rent reversions look good at Hyprop, but that October number really worries me. Retailers are desperate for a decent end to the year and now we have hectic load shedding on top of everything else.

The growth rates in Eastern Europe look at lot better than they do here, although I’ve also highlighted September to show that slow months can happen anywhere:

I am hoping that October was somewhat of an anomaly in the South African portfolio. Time will tell.

Things are not sounding good in Nigeria and Ghana from a macroeconomic perspective, so that’s an unhappy read-through for companies like MTN. Massmart-owned retailer Game seems to have pulled out of space in Ghana, with Hyprop trying to fill that space accordingly.

The loan-to-value ratio is 37.8%, so the Hyprop balance sheet is in good shape. Strong support from shareholders for the dividend reinvestment programme certainly helps.

Lewis pulled it together in the second quarter (JSE: LEW)

After a very slow start to the year, management interventions paid off

Lewis released results for the six months to September. They tell a tale of two quarters, as growth was a paltry 1.1% in the first quarter. After a kick-up-the-you-know-what, new product ranges and advertising campaigns drove growth of 8.5% in the second quarter. Over six months, growth was thus 4.8%. Not great, but could’ve been much worse.

Encouragingly, gross profit margin was up 140 basis points to 40.7%. This helped achieved operating profit growth of 7.5%, which means there was positive operating leverage (an improvement in operating margins) despite the tricky broader environment.

The banks certainly got their pound of flesh though, with net finance costs up from R44.8 million to R62.3 million. Even where local retailers are doing well operationally, they are working for their bankers. There are foreign exchange distortions in there as well.

Headline earnings fell by 14.6% and HEPS was down 6.6%, with the fall partially shielded by the share buybacks that Lewis is most famous for.

If you’re wondering how consumers are doing out there, then my final comment is that credit sales grew 19.5% and cash sales fell 14.4%. Ouch.

Despite the drop in HEPS, the interim dividend is up 2.6% to 200 cents per share.

Lighthouse sells a big chunk of Hammerson (JSE: LTE)

The group has freed up R616 million in the process

Lighthouse has clearly run out of patience with Hammerson, deciding to let go of R616 million worth of shares so that the capital can be redeployed in yield-accretive opportunities. These sales were achieved on-market, which shows you how useful liquidity can be.

This was a Category 2 transaction that didn’t require shareholder approval.

Of course, all eyes will now be on what Lighthouse does with the capital!

Mahube Infrastructure declares a solid interim dividend (JSE: MHB)

Be cautious though, as there were bumper dividends from investments that funded this

On a closing share price of R4.84 and with an interim dividend of 35 cents declared, Mahube Infrastructure might look like quite the yield play. Caution is always required when dealing with interim dividends and assuming that they can be annualised, though.

Mahube invests in infrastructure assets like solar and wind, so the underlying cash flows are about as predictable as the wind itself. Revenue in the six months to August 2023 increased by 39% and HEPS was up 65%.

The jump in dividend income earned by the company was because of a special dividend from two solar projects that were refinanced. Therein lies the rub: special dividends are not designed to be repeated.

These are strong numbers from the fund, but I certainly wouldn’t imply an annual yield by doubling the interim dividend.

Purple Group put in a surprisingly resilient revenue performance (JSE: PPE)

I fully expected revenue to drop this year

Against a backdrop of much higher interest rates and inflation, I anticipated a decrease in revenue at Purple Group as investors find it increasingly difficult to keep adding to their portfolios. I was wrong, as revenue actually increased by 0.8% to R276.1 million. I think that’s impressive.

The pressure did come in expenses though, which were up substantially by 31.9%. Most of this pressure was in the cost of servicing institutional clients, but take note of the inflows mentioned further down. We also saw R25 million in expenses in the Philippines, out of a total expense base of R241 million. These costs drove a swing from profit attributable to ordinary shareholders of R44 million to an attributable loss of R24.9 million.

Looking deeper, I’m even more surprised (and rather pleased) to report that EasyEquities revenue grew by 11.1% to R237.8 million. Active clients were up 17.5% but retail inflows fell by 28.1%. Institutional inflows were up by a huge 169.9%, so institutional revenue is now 39.7% of total revenue, which is a huge increase from 9.7% in 2022.

Thanks to higher client numbers, the cost of service per active client fell by 10% to R170. The cost to acquire an active client is R96 per client.

GT247.com felt the revenue pain, down by 34.5% to R37.3 million. The profit after tax was R2.4 million vs. R11.3 million in the prior year. I was glad to note the introduction of a product called EasyTrader, which aims to take the capability in GT247 to the more sophisticated clients in EasyEquities. This is absolutely the right thing to do.

I wasn’t surprised to see a drop in revenue of 40.1% in EasyCrypto. Interestingly, client assets are up in value, so perhaps people really are just HODLING on their favourite blockchain assets?

In my view, despite the fact that there’s a loss, this is probably the most impressive result I’ve seen from Purple. I genuinely expected a significant drop in revenue.

Reinet’s NAV has dipped since March 2023 (JSE: RNI)

The dividend is slightly higher year-on-year, though

Reinet can perhaps best be described as Johann Rupert’s “stay-rich” fund, with investments in companies like British American Tobacco and Pension Insurance Corporation. The net asset value (NAV) per share has dropped 1.8% between March 2023 and September 2023, but a proper long-term view shows an 8.5% CAGR in euros since March 2009.

An inaugural dividend from Pension Insurance Corporation of €57 million helped Reinet increase its interim dividend from €0.30 per share to €0.28 per share.

In addition to the two major investments, the group holds investments in various private equity funds. These stakes contribute 21.2% of the investment portfolio excluding cash.

Resilient’s tenants have little in the way of real growth to report (JSE: RES)

At least rental reversions are positive

Resilient released a pre-close update covering the 10 months to October. Comparable sales growth was 5% over this period, which means the fund’s tenants are struggling to stay ahead of inflation. Some regions are running far lower than that number for various reasons.

Despite the overall pressure, vacancies are down and reversions were extremely positive, with leases for new tenants up by a whopping 26.5%. Across renewals and new tenants, leases were up 7.9%.

It feels like landlords are playing catch-up, but they will need proper underlying growth to support ongoing rental increases.

Load shedding certainly won’t help. By December 2023, Resilient will have solar backup that will supply 27.5% of the group’s energy consumption.

Things are looking far better in France, where sales increased 10.1% for the nine months ended September.

In terms of the balance sheet, Resilient received 50% of its dividend from Lighthouse in shares and the rest in cash. Resilient also sold its remaining interest in Hammerson, receiving R1.2 billion vs. the original purchase price of R746.4 million.

Des de Beer is retiring as CEO at the end of 2023, with Johann Kriek appointed as his replacement.

Full-year guidance of R4.00 per share has been affirmed. The current share price is R40. You don’t need your calculator to work out the yield.

Salungano is still trying to refinance its business (JSE: SLG)

The company is falling further behind on financial reporting

Salungano is suspended from trading because it hasn’t released its 2023 financial statements. In order to release those financials, it needs to conclude a refinancing process so that it can be seen as a going concern. Although a Chief Restructuring Officer has been appointed, it takes time to get these things right.

It doesn’t help that subsidiary Wescoal Mining is in a voluntary business rescue process. The publication of the business rescue plan has been postponed to February 2024.

And on top of all this, the interim results for the six months to September are due for release soon and that deadline is obviously going to be missed because the March year-end results aren’t done. These problems tend to compound over time.

Spar says farewell to its dividend (JSE: SPP)

You won’t even find it lurking at the back of the store

I’ll start with the good news: turnover at Spar increased by 10.1%. That largely brings me to the end of the good news.

Operating profit tanked by 47% from R3.4 billion to R1.8 billion. The company tries to soften the blow with its view that R1.4 billion is non-recurring. That just means that they hope the same problems won’t happen again. It doesn’t mean that there won’t be new problems.

Locally, SPAR Southern Africa only grew turnover 5.1% in a period where price inflation was 9.7%. This tells you that volumes went firmly the wrong way. It was even worse at Build it, with turnover down 4.3% as consumers bought food rather than household improvement products. You need to Eat it more than you need to Build it. Luckily, people still got sick, so the pharmacy businesses achieved 19.2% turnover growth.

In Ireland and South West England, turnover was up 8.1% in euros and 21.9% in rands. The food services business did well, assisted by a recovery in hospitality.

In Switzerland, turnover fell 3.3% in local currency and increased by 13.6% in rands. Food is so expensive in Switzerland that residents travel across the border to buy food. Life in Europe, hey.

Despite property funds telling a great story about retail in Poland, SPAR Poland isn’t seeing enough of that happiness. Turnover was only up 5% in local currency or 19.9% in rands. The business is still heavily loss-making though, leading to a decision to sell the operations in Poland. Finding a buyer might not be so easy. This acquisition has been a terrible story for Spar, in fairness with a completely unforeseeable pandemic in the middle that made integration very tough.

There are no excuses for the catastrophic SAP roll-out though, which cost Spar R1.6 billion in turnover in KZN and R720 million in lost profits. They’ve also had to write off R94.1 million because they’ve had to change their approach to the SAP roll-out in other regions.

The group isn’t in breach of any debt covenants at this stage. To be prudent though, the dividend is now a thing of the past. With HEPS down 47.7%, that’s the right approach.

The stock has lost 40% of its value in the past 5 years. If only the same could be said for food prices.

Little Bites:

  • Director dealings:
    • Adrian Gore has entered into a large hedge over his Discovery (JSE: DSY) shares, in the form of buying put options with a notional value of R578 million at a strike price of R110.26 and selling call options with a notional value of R927 million at a strike price of R176.71. Simply, what’s happening here is that he is buying downside protection at R110.26 per share and funding it by giving up upside above R176.71 on a bigger value of shares. The current share price is R133. Separately, a director of a major subsidiary of Discovery sold shares worth R1.03 million.
    • A prescribed officer of Standard Bank (JSE: SBK) has cashed in, selling shares worth R11.1 million.
    • A prescribed officer of Old Mutual (JSE: OMU) has bought shares worth R2.9 million.
    • The CEO of AECI (JSE: AFE) bought shares worth R216k.
    • A non-executive director of Gold Fields (JSE: GFI) bought shares in the company worth $15.2k.
    • An associate of two directors of Delta Property Fund (JSE: DLT) has bought shares worth R45.9k.
  • After releasing results the previous day, Hosken Consolidated Investments (JSE: HCI) released a cautionary announcement related to a proposed transaction. The cautionary doesn’t even say whether this is an acquisition or disposal. We will have to wait and see if anything more concrete is announced at some point.
  • Fortress (JSE: FFA | JSE: FFB) has released the circular for the transaction to repurchase all Fortress B shares by giving those shareholders NEPI Rockcastle (JSE: NRP) shares as payment. EY is acting as independent expert and has opined that the transaction is fair and reasonable to both classes of shareholders. After the last failed attempt to address the dual-share class structure, the company will be hoping that this one goes through.
  • In what will probably not be loved by the market as a succession story, Bell Equipment (JSE: BEL) has announced Ashley Bell (currently a non-executive director) as the replacement for Leon Goosen as CEO. This is no comment on Ashley at all and I’m sure he’s a capable guy, but the market tends to be nervous of family businesses that choose to bring management back in-house vs. having an unrelated person in charge. Time will tell.
  • The business rescue practitioners dealing with Tongaat Hulett (JSE: TON) have published the updated business rescue plans. There are two plans because there are two bidders! Kagera Sugar was initially identified as the preferred bidder, but that group has fallen away. The two horses in the race are now the Vision Consortium (which includes Robert Gumede) and RGS Group, which produces sugar in Mozambique. In terms of the local economy, it’s really important that Tongaat is rescued here. Creditors will vote on the plans on 8 December.
  • Orion Minerals (JSE: ORN) has received R5 million from Clover Alloys and has issued shares accordingly.
  • AYO Technology (JSE: AYO) announced that deputy chairman, Khalid Abdulla, is retiring with effect from 1 December.
  • With a market cap of just R5 million, it doesn’t get more obscure than African Dawn Capital (JSE ADW). In the six months to August, the company generated revenue of R7.9 million and a loss before tax of R8.2 million. Obscure, and getting more obscure it seems.

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

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

Exchange-Listed Companies

South Africa’s AltX-listed copper producer, Copper 360, has acquired Nama Copper from Mazule Resources in a deal valued at R200 million. Nama Copper is located adjacent to Copper 360’s operations in Nababeep. Its flotation plant is currently under care and maintenance.

Hudaco Industries is to acquire the trading assets and liabilities of the Plastic-Weld business, an importer and stockist of plastic welding equipment, hot-air tools, specialised test and inspection equipment and thermos cutters. The purchase consideration of R56 million (maximum) will be funded from cash and existing facilities.

A consortium led by ACN Capital (its founder is current CEO and acting CFO of Ascendis Health) has made an offer to minorities to acquire their Ascendis Health shares for a cash consideration of 80c per share. The offer price represents a premium of 25% to the 30-day volume weighted average price as at 26 September 2023, the day prior to the release of the initial cautionary. The delisting of the company will give the consortium the opportunity to continue with its restructure, optimise and grow the remaining businesses and exit those that are considered mature which will realise value for those shareholders who opt to remain in an unlisted company.

African Rainbow Minerals (ARM) has concluded an agreement with Norilsk Nickel Africa to acquire the remaining 50% participation interest in its joint venture that operates the Nkomati Mine. The mine is currently under care and maintenance. ARM will take over the environmental liabilities of the mine together with Norilsk’s proportionate share of the obligations and liabilities relating to the assets, with a R325 million contribution from Norilsk. For ARM the benefits of the transaction include the known and predictable nickel sulphide orebody and the bi-metal product credits which include copper, cobalt, platinum, palladium and chrome.

Delta Property Fund has entered into an agreement with Goldview Africa to dispose of its property known as the Smartxchange, situated at 5 Walnut Road in Durban for R46 million. This follows the failed deal with Ubud Development in May this year in which the parties could not reach agreement on the terms of the sale.

Unlisted Companies

Local fleet management startup GoMetro has raised US$11,5 million in a Series A round. The capital will serve as a catalyst for GoMetro’s mission to digitise heavy duty commercial transport operations and further develop its EV fleet management platform in the key markets of UK, US and South Africa. The round was led by Zenobē Energy with participation from new backers Futuregrowth Asset Management, ESquared Ventures and Kalon Venture Partners and existing investors Decades Capital, Hlayisani Capital and Tritech Global.

Global logistics provider Dachser has acquired the remaining 30% stake in Dachser South Africa from the founding Duve family. Dachser first entered SA with a joint venture, taking a majority stake in the family-owned company Jonen Freight. The company offers air, sea and road logistics. Financial details were undisclosed.

British International Investment (BII) has announced a R125 million investment in two 140MW wind farms in South Africa’s Northern and Eastern Cape. Currently under construction, the two wind farms are expected to reach completion in 2024. This is part of a three-project cluster co-developed by H1 Capital and EDF Renewables.

EnviroServ has acquired the remaining 50% stake in Vissershok Waste Management Facility, a waste treatment and disposal facility in Cape Town. Financial details were undisclosed.

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

Weekly corporate finance activity by SA exchange-listed companies

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

Lighthouse Properties has disposed of 98,051,120 Hammerson plc shares for an aggregate cash consideration of R616,1 million.

Quilter has repurchased a total of 15,798,423 shares in terms of its Odd-lot Offer, 291,711 ordinary shares on its UK share register and 15,506,712 shares held by South African shareholders, for an aggregate £13,9 million (R317,2 million). The shares represent c. 1.13% of the existing issue share capital of the company.

Orion Minerals is to issue 25 million shares at R0.20 per share to Clover Alloys. Clover exercised the options which were offered as part of Orion’s placement undertaken earlier this year.

Prosus and Naspers continued with their open-ended share repurchase programmes. During the period 20 – 24 November 2023, a further 3,450,828 Prosus shares were repurchased for an aggregate €104,72 million and a further 325,415 Naspers shares for a total consideration of R1,11 billion.

Following the announcement in October of its share buy-back programme, AB InBev has repurchased a further 1,630,438 shares at an average price of €57.13 per share for an aggregate€93,15 million. The shares were repurchased in the period 20 to 24 November 2023.

Glencore intends to complete its programme to repurchase the company’s ordinary shares on the open market for an aggregate value of US$1,2 billion by February 2024. This week the company repurchased a further 9,650,000 shares for a total consideration of £43,1 million.

Six companies issued profit warnings this week: Efora Energy, Nampak, PBT Group, Purple Group, Transaction Capital and Huge Group.

Six companies issued, renewed or withdrew a cautionary notice: Sun International, Ellies, Ascendis Health, enX, Afristrat Investment, Hosken Consolidated Investments.

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

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