Saturday, April 26, 2025
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Ghost Bites (Accelerate Property Fund | Purple Group | Transaction Capital | York Timbers)

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Accelerate Property Fund taps the market (JSE: APF)

The company needs to raise R200 million via a rights offer

Accelerate Property Fund has a broken balance sheet. Fixing such a problem isn’t easy, unless there are properties that are easy to sell at market value. Even then, this inevitably means selling the best properties in a portfolio to reduce debt and being left with only that yucky stuff at the bottom of the dishwashing water.

Accelerate Property Fund got itself into this mess and shareholders will be asked to get it out. The company warned in December 2023 that a rights issue of up to R300 million may be needed. Although the end result isn’t quite as bad as that, a right issue of up to R200 million is still very far from ideal.

This is being done at a fat discount to what is already a highly discounted share price. The subscription price is a discount of 31.65% to the 30-day VWAP. Although excess allocations will not be allowed, this is a renounceable rights offer and so shareholders can try sell their letters of allocation in the market if they aren’t going to follow their rights.

Whatever you do, don’t allow your letters to expire worthless. Either follow your rights or sell the letters, or all you are doing is destroying value in your shareholding.

K2016336084 (South Africa) has fully underwritten the offer. Although this circular doesn’t say it, a previous announcement described this entity as the iGroup, which already holds a significant minority stake in Accelerate. Whether or not that name is still applicable isn’t obvious, but what is useful in the circular is a note that Urban Retail Property Investments is the sold shareholder in that entity.

The underwriter gets paid a delicious 5% fee of R10 million for this (plus a recoupment of costs of up to R300k), which just means more pain for other shareholders. Escaping a rotten balance sheet is always a very unpleasant exercise.

The circular is available here.


Purple Group swings into the green (JSE: PPE)

And now we wait for full details

Purple Group released a trading statement for the six months ended January 2024 that tells a positive story. After reporting a headline loss per share of 0.84 cents in the prior period, Purple has swung solidly into the group with HEPS of between 0.74 cents and 0.82 cents.

Keep in mind that this is a stock trading at 70 cents per share, so this puts it on a rather daft Price/Earnings multiple. Of course, the market is smarter than that, so investors will wait for more information on the drivers of these earnings and other key metrics like cash conversion.

After a one-way journey for the share price since the peaks in early 2022, this is a welcome return to profitability. Full details are expected on Tuesday, 16th April.


Transaction Capital: life after WeBuyCars (JSE: TCP)

More leadership changes have been made

The Transaction Capital share price dropped to R3.36 in the aftermath of the WeBuyCars unbundling. This is where value investors will pay attention, as the “ugly duckling” that gets ignored by the markets is where savvy value investors can make money. It’s also where they can get severely humbled. Nobody said this game was easy.

With WeBuyCars now out of the picture and Transaction Capital having taken the opportunity to unlock some capital in the process to help repair the balance sheet, the group now has the charred remains of SA Taxi and the interesting prospects of Nutun to manage, along with some other bits and pieces.

To navigate the way forward, the board is being streamlined into three committees (down from six). Forgive me for not spending much time on non-executive director stuff, particularly since there were plenty of committees in place when I watched my Transaction Capital position blow up. Instead, I’ll focus on the executive changes, with the big one being that the Chief Investment Officer and Chief Financial Officer roles are being combined into a single executive position. Mark Herskovitz is stepping into that role, having been with the group since 2007 in various leadership roles. Sahil Samjowan is stepping down as CFO.

It’s also rather interesting to note that another Transaction Capital founder has been pulled off the proverbial golf course to come back and help fix things up. Roberto Rossi is being appointed as an executive director of TransCapital Investments.

The road ahead will be volatile, of that I’m confident.


York raises debt from an international lender (JSE: YRK)

Those biological asset movements must’ve been a key part of this negotiation

York Timbers is many things, but a cash cow hasn’t been one of them. Forestry is a complicated thing and movements in the valuation of the biological assets can look very different to the operational profits in a given year. York seems to have found a lender who understands that, with Nederlandse Financierings-Maatschappij Voor Ontwikkelingslanden N.V. (there’s a candidate for your next tongue twister) agreeing to lend R350 million to York as a new long-term facility.

This will refinance R146 million in debt from the Land and Agricultural Development Bank of South Africa and R75.7 million from Absa. They will also use R65.4 million to acquire Pine-Valley farms. The rest will be for general working capital and the Environmental and Social Action Plan.

The loan is for a nine-year period and must be paid off in instalments. Capital repayments only start after three years.

The rate is 3-month JIBAR plus a margin of 338 basis points per annum. This works out to 11.73% based on Friday’s JIBAR rate. The margin drops by 50 basis points once York achieves two consecutive years of net profit and a net debt to EBITDA ratio below 3x.

The debt has been structured to match the profile of York’s plantation reaching optimal rotation age, which is perhaps why York needed an international lender to get this right. This is very different to the standard loan and credit process.


Little Bites:

  • Director dealings:
    • It wasn’t the easiest thing to figure out, as Mpact (JSE: MPT) first announced the vesting of 2021 Bonus shares as well as shares under other schemes, and then a few days later announced the extent of share sales. As always, sales to cover tax don’t count as a sale for me, but excess sales do. From what I can see, almost all the executives and prescribed officers chose to sell all the shares that vested, rather than just a portion. On top of that, a director of the major subsidiary also sold R2 million worth of shares in an on-market trade.
    • The spouse of the CFO at Standard Bank (JSE: SBK) sold shares in the company worth R149k.
  • The stake held by Canal+ in MultiChoice (JSE: MCG) is now 40.01%, with the company mopping up liquidity in the market with recent purchases between R117 and almost R120 per share. Canal+ will keep doing this provided the price is below the mandatory offer price of R125 per share.
  • AH-Vest (JSE: AHL) has practically zero liquidity and a market cap of R2 million. No, that isn’t a typo. The share price is at 2 cents per share. For the six months to December 2023, HEPS will be 37% higher than the comparable period, coming in at 2.59 cents per share. This is one of those classic examples of a very odd situation in microcap land.
  • Visual International (JSE: VIS) replaced Moore Infinity with LDP Chartered Accountants as its auditors. This will save on audit costs going forward. LDP’s website suggests that they have nearly 140 staff, so it’s not the smallest place around even though I hadn’t heard of them before.
  • Salungano Group (JSE: SLG) announced a further delay to the publication of FY23 financial results due to the audit opinion not being finalised in time. To make it worse, no updated timeline has been given. The company also reminded shareholders that the business rescue process for Wescoal Mining is waiting for the postponed meeting in June 2024. The business rescue for Keaton Mining is under appeal, as the business rescue application was initially dismissed.

Nobody wants to buy alligator pears

It’s not every day that a supersized annual sporting event transforms an obscure exotic fruit into a $341.9 million industry. This is the unlikely story of the avocado, the Super Bowl and the rebrand of the century. 

Before we go any further: yes, avocados are technically fruits (if you want to get even more technical about it, they are members of the berry family). And while they seem to be ubiquitous these days, topping everything from toast and pizza to poke bowls, there was a time not too long ago when these pear-shaped, leather-skinned delicacies were considered quite rare in the United States. So how did the humble avocado graduate from grocery-store reject to Super Bowl Sunday star ingredient? 

Let’s start at the beginning. 

What’s in a name? 

The avos we know (and love) today weren’t always known by their snappy name. From their early start in Central and South America around 500 BC, they were known to Spanish speakers as the aguacate fruit. This proved challenging to pronounce in the West, particularly in North America. Their original aztec name, āhuacatl, was even more of a problem, especially since it translates directly to “testicle” (an ode to both the shape of the fruit and its use as an aphrodisiac). 

Inspired by the outline of the fruit and its tough, bumpy skin, farmers in the United States dubbed it the alligator pear. While this was much easier to pronounce, the visual of a swamp-dwelling, man-eating reptile did little to move avocados off the shelves. The fact that they really had nothing in common with pears beyond their shape also didn’t help matters. 

Farmers had a marketing problem on their hands. They knew that the fruit had potential, but they couldn’t convince people to try it. After much to and fro, a group of growers came together in 1915 to solve the problem for good. They decided to rename the fruit as the avocado – a nod to its language of origin with an upmarket, exotic spin. This, they reckoned, was a product that could be sold to the dinner party crowd, the perfect appetiser to accompany prawn toasts and shrimp cocktails.

By the 1920s, the collective of avocado growers had also renamed themselves the California Avocado Association, and they were well on their way to positioning avocados as the luxury food of the decade. One print ad from that era showed a beautifully sliced avocado, fanned out on an expensive piece of china, under the headline: “The aristocrat of salad fruit.”

Avocados were finding their market, but it was a niche one that saw little sales. For things to really improve, bolder steps needed to be taken. 

A bumpy route to market

Avocados are curious things, and that curiosity makes them a hard sell. Think about it: they are found in the fruit aisle of the grocery store, but they aren’t sweet. They have a tough, inedible skin and a hard pit that is difficult to remove. They ripen slowly but go off very quickly. They don’t cook well and start browning practically as soon as they have exposure to air. 

For starters, consumers in the US had to be educated on what avocados were. Americans simply didn’t know how to choose or eat the fruit – they weren’t waiting for them to ripen, and were then disgusted by the taste and texture. The growers went to great lengths to educate supermarket owners on the difference between a ripe and unripe avocado, so that they in turn could help their customers. 

Various avocado marketing campaigns saw moderate sales in the produce aisles between the ’50s and ’70s. That was all well and good until nutrition experts began to promote a low-fat diet. The public couldn’t differentiate between saturated fats, which were the target of this movement, and monounsaturated fats, which are “good” fats. 

Naturally, fatty avocados came under fire. Again, the avocado growers thought smartly. By funding research into monounsaturated fats and the benefits of the Mediterranean diet in particular, they made a strong case for avocados as a health food, thereby unlocking a new consumer demographic. Avocados entered the nineties with a healthy edge, but sales still lagged.

Holy guacamole

Since the start, the avocado problem has been a marketing problem – and there’s only one way to solve one of those. Eventually, a PR firm was hired to transform avocados from a luxury item into an everyday item for shoppers. That’s when the guacamole Super Bowl ritual was born.

In the ’90s, the nature of Super Bowl Sunday changed. The event became less about watching the game and more about having a reason to get together for a party – and having a party meant consuming beer and snacks. And what better snack to accompany all those chips than guacamole? Naturally, avocado growers wanted in on the Super Bowl frenzy, but there was one major problem. The Super Bowl takes place right in the middle of the growing season for avocados in the US, when ripe fruits are unavailable. 

This may have been a problem for US growers, but south of the border, Mexican farmers got a whiff of potential. Avocado imports from Mexico were banned until 1997 due the alleged risk of parasites from tropical climates, but restrictions were loosening up. Seizing the opportunity to colonise the Super Bowl, more and more Michoacán producers managed to pass the sanitary tests necessary to gain access to the US market. By the time the Mexican avocado imports were completely liberalised in 2007, Michoacán had become an unbeatable competitor for Californian avocado growers. 

In 2021, 132.3 tons of avocados were consumed on Super Bowl Sunday. About 75% of those Super Bowl avocados were imported from Mexico, which has been the largest supplier of avocados to the US since 2008. 

Banned less than three decades ago, avocados from Mexico have become so normalised in the US that one brand has even adopted the phrase as their name. And their Super Bowl ads are… shall we say, memorable. 

The dark side of the guacamole 

Of course, where there is massive demand, there is usually also massive opportunity for crime. 

It probably comes as no surprise to anyone that Mexico now has numerous avocado cartels. The same avocado farmers in Michoacán who seized the opportunity to be a part of the Super Bowl are increasingly becoming victims of blackmail and kidnapping, forced to sell their orchards to gangsters at bargain prices. And that’s the good outcome. The less good outcome ends with a bullet hole at the nape of the neck. 

Meanwhile, large importers and avocado brokers are making a different kind of killing. By purchasing their avocados from dodgy producers at dirt-cheap prices, they are able to effectively pay a dollar per kilo for the same avocados that later sell for eight dollars in US supermarkets. 

Capitalism, hey? Not even avocados are spared. 

About the author:

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

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

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

Ghost Bites (Kibo Energy | Nu-World | Schroder | Sibanye-Stillwater)

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



Kibo Energy’s subsidiary Mast is making progress – I think (JSE: KBO)

Further funding will be needed to support the projects

Kibo Energy continues to languish at R0.01 per share – the lowest possible share price. There are 73.6 million offers in the market at R0.02 and 17 million bids at R0.01, so more investors want out than in – even at this price.

Half the problem is that it’s quite difficult to figure out whether Kibo is delivering good news or not. The announcements are incredibly operational in nature and don’t give enough information in my opinion about the investment opportunities.

For example, the latest news at subsidiary Mast Energy Developments (MED) is that the Pyebridge flexible power generation asset was completed ahead of schedule and is back in operation. Also, the Hindlip Lane project has completed pre-construction work.

The announcement gives an indication of the gross profit margin income that Pyebridge could earn over the next couple of years, but gross profit doesn’t mean much. Net profit is what counts.

When you combine the limited financial information with the generic commentary about how MED is in discussions with various debt and equity providers, it’s really hard to understand how benefits will flow through to Kibo Energy. The only way this company is getting off the R0.01 mark is if they can drastically simplify the investment story and show more hard numbers, rather than endless paragraphs of operational information.


Some resilience at Nu-World, but when will it grow? (JSE: NWL)

Watch out for that working capital balance

Nu-World Holdings imports and distributes appliances, along with some other stuff like specialist liquor. That’s not an easy gig in South Africa, with consumers under pressure and infrastructure issues leading to the group needing to hold far too much inventory relative to sales. There’s nothing easy about a business model in South Africa that relies on consumer discretionary spending.

This is exactly why Nu-World has been putting a great deal of effort into offshore expansion, with those businesses now contributing more operating income than the South African businesses!

This hasn’t stopped Nu-World from being quite the value trap, with the share price not rewarding investors who are buying it at a price far below net asset value per share.

Still, there’s some resilience in this thing now thanks to the offshore exposure, with revenue for the six months to February down by 2.8% and HEPS down 5.0%.


Schroder’s real estate values are still under pressure (JSE: SCD)

Aside from the industrial portfolio, it’s still tough out there

Schroder European Real Estate announced property valuation movements for the quarter ended March 2024. Overall, the direct property portfolio fell by 1% for the quarter. This was driven by “continued outward yield movement” – a fancy way of saying that the capitalisation rate for the valuation was higher, which makes the present value of future cash flows lower. This leads to a negative move in valuations despite rental income being stable.

The highlight is the industrial portfolio, which saw valuations increase 0.4% for the quarter. The office portfolio wasn’t too bad actually, with valuations down 1.1%. The German retail portfolio brought up the rear for the traditional assets, with the valuation moving 2.3% lower. The alternative investments saw their valuations drop 3.2%.

The portfolio loan-to-value is 33% gross and 24% net of cash.


More retrenchments likely at Sibanye-Stillwater (JSE: SSW)

Another day, another s189 for the group

Although there are signs of life in PGMs and gold is at record highs, Sibanye-Stillwater still needs to carefully manage its operations to ensure that the business is run sustainably. The company isn’t shy to enter into retrenchment processes, with a few recent examples.

This time, the issues are losses at the Beatrix 1 shaft (which has not delivered planned production) and the problems at the Kloof 2 plant related to insufficient processing material available to cover overheads after closure of the Kloof 4 shaft during 2023. As a further problem, capital expenditure at Burnstone has been deferred, which means restructuring is needed to align with the reduced capital activities.

With less activity at the mines, the shared services functions for South Africa are surplus to requirements. The company also takes into account further planned investments when making this assessment.

These proposed restructuring activities could affect 3,107 employees and 915 contractors.


Little Bites:

  • Delta Property Fund (JSE: DLT) announced that Brett Copans has been appointed as a non-executive director to the board. From what I can see, he’s also the Chief Restructuring Officer at Cell C. How many tough balance sheets can one person deal with at a time?
  • Two non-executive directors at Renergen (JSE: REN) will be leaving. The chair of the audit and risk committee will be retiring as a director and another director is resigning with immediate effect for personal reasons.
  • Although it hardly matters to shareholders of Tongaat Hulett (JSE: TON) as there’s no equity value in the thing anyway, it’s worth mentioning that the drama still isn’t over. Powertrans Sales & Services has applied to court to have the business rescue plan set aside as unlawful. Having said that, a skim through the founding affidavit suggests that Powertrans isn’t blind to the bigger picture here. Check out the screenshot below and read through to the founding affidavit if you’re interested.

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

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Exchange-Listed Companies 

Sanlam has increased its stake in Shriram General Insurance (SGIC) and Shriram Life Insurance Company (SLIC). India is seen as a core market and strategic pillar to achieving long term earnings growth and sustainable shareholder value creation for Sanlam. Sanlam has acquired a further 10.74% stake in SGIC and 12.02% in SLIC from TPG India Investments II and Shriram Ownership Trust. The R2 billion purchase consideration will be partly funded from the net proceeds of its R3,3 billion disposal of a 1.56% sale of its Shriram Finance (SFL) stake to Shriram Value Services. Following the transaction, Sanlam’s effective economic shareholding in SGIC will increase to 50.99% and to 54.40% in SLIC. Its shareholding in SFL will decrease to 9.54%.

Shoprite has teamed up to form a venture capital fund with four global grocery leaders – Ahold Delhaize (US, Europe, Indonesia), Tesco (UK, ROI, Europe), Woolworths Group (Australia, New Zealand) and Empire Company/Sobeys (Canada) with Shoprite representing the African footprint. The new collaborative retail venture capital fund, W23 Global, will seek to invest US$125 million over five years in the world’s most innovative start-ups and scale-ups with the potential to transform grocery retail and address the sector’s sustainability challenges. Each retailer is an equal funder and partner in W23 Global, while their CEO’s will sit on the investment committee. Their ambition is to offer their portfolio companies faster pathways to global scale, without being exposed to a venture fund anchored by a single strategic investor.

This week, MultiChoice told shareholders that it would work closely with Canal+ on the mandatory offer made to shareholders. Canal+ has offered MultiChoice shareholders R125 per share in cash, significantly above the minimum price of R105 required by the takeover regulations – the price at which it acquired shares which triggered the mandatory offer. If shareholders with at least 90% of eligible MultiChoice shares accept the offer, then MultiChoice may delist from the JSE. However, shareholders may have the opportunity to participate in Canal+’s own proposed listing in Europe as part of a secondary inward listing on the JSE.

Micawber 832 purchased 185 Katherine Street (Pri-movie Park) and 1 Charles Crescent in Eastgate from Accelerate Property Fund in October 2023 for R117 million. Accelerate has announced that that Micawber has elected to nominate Emidomax in its place as the purchaser of Pri-movie Park and Minropox as the purchaser of 1 Charles Cresent (both beneficially owned by Africrest Properties and Old Mutual). All other terms and conditions remain unchanged.

The saga of the off-market takeover offer by Goldway Capital Investment of MC Mining shares ratchet up another notch this week with the company’s board advising shareholders to consider accepting the offer. With Goldway proposing to delist the company, citing limited liquidity in the trading of the shares, MC Mining’s board believes that there is no likelihood of an alternative bid or competing proposal on more favourable terms in the near term. Goldway, a consortium which includes MC Mining’s largest shareholders Senosi Group Investment Holdings and Dendoceptin, has an 83.67% stake in MC Mining.

Following the acquisition in March 2023 of a 74.2% stake in IQbusiness, Reunert is considering merging the business with +OneX into a single client-focused business, to create a digital integrator within Reunert ICT. The final decision on the combination is still to be made and will requiring the respective board and shareholder approvals. 

Unlisted Companies

Vantage Capital, Africa’s largest mezzanine debt fund manager, has announced that it has made a R346 million investment into Procera Group, a South African business process outsourcing (BPO) services provider. Vantage’s investment comprises the acquisition of a significant minority equity stake from the Procera founders as well as the provision of a mezzanine facility to support future strategic acquisitions by Procera. The group currently services over 50 local and international blue-chip clients across key industries such as Retail, Financial Services, Energy and Telecommunications in South Africa, Namibia, United Kingdom, United States and Australia.

Isipho Capital has added to its portfolio with the acquisition of the Hino dealership located in Pomona Johannesburg, making it the first 100% black-owned Hino dealership in the country. The dealership is also 65% women-owned. Other businesses in its portfolio include interests in Mr Coach, which specialises in ambulances, mobile clinics, hearses, buses, and other conversions, as well as Kholeka Engineering, which is known for its manufacture of truck bodies, trailers, people carriers and water tankers.

Enko Capital Managers has exited its 2015 investment in Madison Financial Services. The exit of the Zambian microfinance services group, by Enko Africa Private Equity Fund to Cape-based asset manager Mergence Investment Managers is by way of the sale of its entire equity and debt. Madison operates general and life insurance businesses along with microfinance activities in Zambia and a general insurance business in Tanzania.

DealMakers is SA’s M&A publication.

www.dealmakerssouthafrica.com

Weekly corporate finance activity by SA exchange-listed companies

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Ellies, which entered voluntary business rescue in January this year, has advised that the appointed business rescue practitioner has concluded that there is no reasonable prospect of the Company being rescued. Given this, an application will be made to the place the company into liquidation.

WeBuyCars listed on Thursday 11 March, 2024 with a market capitalisation of R8,51 billion. The final number of ordinary shares in issue at the listing date was 417,181,120. The share price closed on its first day of trading at R20.40 – up close to 9% on the R18.75 price per share of its initial public offering.

A number of companies announced the repurchase of shares.

British American Tobacco has commenced its programme to buyback ordinary shares using the £1,57 billion net proceeds from its sale of ITC shares. The company will buy back £1,60 billion of its ordinary shares – £700 million in 2024 and the remaining £900 million in 2025. This week the company repurchased a further 1,480,000 shares at an average price of £23.35 per share for an aggregate £3,48 million. 

Prosus and Naspers continued with their open-ended share repurchase programmes. During the period 2 to 5 April 2024, a further 2,426,285 Prosus shares were repurchased for an aggregate €71,59 million and a further 226,606 Naspers shares for a total consideration of R749,3 million.

Two companies either issued, renewed, or withdrew cautionary notices this week: Tongaat Hulett and MultiChoice.

DealMakers is SA’s M&A publication.

www.dealmakerssouthafrica.com

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

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DealMakers AFRICA

Edgars has successfully listed on the Victoria Falls Stock Exchange on Friday 5 April following shareholder approval to delist from the Zimbabwe Stock Exchange last month. 

Enko Capital Managers has exited its investment in Zambia’s Madison Financial Services to subsidiaries of Mergence Investment Managers in Cape Town. Madison was the first investment made by the Enko Africa Private Equity Fund back in 2015. This marks the fund’s sixth successful exit out of seven investments.

Prospect Resources has acquired an 85% stake in the Mumbezhi Copper Project in the Zambian Copperbelt from current owners, Global Development Cooperation Consulting Zambia. As settlement, Prospect will pay US$5,5 million in cash plus issue US$1million in shares. 

Ghanian digital bank, Affinity, has received an undisclosed investment from Renew Capital as it looks to expand across the continent.

Nigerian Exchange Group, FSD Africa and Trade and Development Bank Group, along with other domestic and international investors, participated in a capital raise for the Ethiopian Securities Exchange of ETB 1,514 billion (US$26,6 million) which represented a subscription of 240% on its initial target of ETB631 million (US$11,07 million).

SunCulture has raised US$27,5 million in an oversubscribed series B fundraise to scale its solar irrigation offering across sub-Saharan Africa. As part of the Series B, InfraCo Africa made a US$12 million equity investment in the Kenyan firm.

Altona Rare Earths and Ignate African Mining P/L have entered into an option agreement which gives Altona an exclusive option to acquire up to an 85% interest in Prospecting Licence PL2329/2023, known as the Sesana Project and located in Botswana’s Kalahari Copper Belt. The option agreement stipulates three tranche payments totalling US$110,00 in cash and US$250,000 in Altona shares over a four-year period.

The Board of Directors of Nigerian Breweries Plc is to recommend to shareholders at the next AGM that they approve a capital raise of ₦600 billion by way of a Rights Issue to help reduce the company’s debt burden and thereby strengthen its balance sheet. 

DealMakers AFRICA is the Continent’s M&A publication

www.dealmakersafrica.com

Froneman bets on guilt free hydrogen

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With the great majority of the world’s governments committing to decarbonising their economy within the next two generations, we are embarking on an adventure into the unknown.

What was once a debate over carbon price and emissions trading has evolved into an industrial policy competition. Along the path, there will be opposition and denial. There will be breakthroughs and unexpected victories. The cost of solar and wind electricity has dropped dramatically during the previous two decades, and battery-powered electric cars (EVs) have progressed from imagination to commonplace reality.

However, in addition to open resistance and unambiguous wins, we will have to deal with ambiguous situations, wishful thinking and motivated reasoning. As we seek technological solutions to the decarbonisation issue, we must be wary of the energy transition’s mirages.

Globally respected economist, Adam Tooze recently opined in Foreign Policy magazine that, right now, we face a similar dilemma – a dilemma of huge proportions – not with regard to H2O, but one of its components, H2—hydrogen. 

Green hydrogen is created when water is split into oxygen and hydrogen (natural gas), using wind or solar energy. Green hydrogen can replace fossil fuels.

“Is hydrogen a key part of the world’s energy future or a dangerous fata morgana?” Tooze reasoned rhetorically. “It is a question on which tens of trillions of dollars in investment may end up hinging. And scale matters.”

The real potential of green hydrogen, and how South Africa can take advantage of the anticipated demand in the drive towards clean, sustainable energy, was the subject of Johannesburg’s recent Indaba special session on green hydrogen so, clearly, industry is excited by its potential. Speaking to lawyers at Bowmans recently revealed that deal due diligence in the space is heating up. 

Green Hydrogen is coming into its own, with well over 500 projects globally, in various stages of development. The challenge so far has been getting these projects to financial close. Rebecca Maserumule, Chief Science and Tech representative – Hydrogen and Vaccines inside the Department of Science and Innovation, recently told Catalyst that only roughly 4% of these projects have reached final investment decision (FID).

Priscillah Mabelane, Sasol’s Executive Vice President – Energy Business, was quoted by Reuters in November on the sidelines of a demonstration of an on-road, green hydrogen ecosystem, where a car developed by Toyota was shown to run on fuel produced by Sasol, saying that the firm expects green hydrogen to be cost competitive by 2035. By then, costs would come down to below US$2 per kilogram, from between $4 and $6 at present.

Mabelane said that the company was working with the government to define standards and regulations for green hydrogen, and to set up a port for the export of the green fuel.

Meanwhile, Sibanye Stillwater is betting on “turquoise hydrogen”. 

In an interesting move toward a sustainable energy future, Sibanye-Stillwater and Savant Venture Fund announced a strategic investment in BurnStar Technologies, a trailblazing South African clean hydrogen company. This collaboration stands as a significant milestone in South Africa’s commitment to sustainability, with a focus on the production of Guilt–Free (Turquoise) Hydrogen™.

BurnStar Technologies, positioned at the forefront of South Africa’s hydrogen transition, employs a cutting-edge patented liquid metal reforming process for hydrogen production. Through methane pyrolysis, BurnStar can convert Methane, LNG or LPG feedstock into high-purity hydrogen with near-zero carbon dioxide emissions. Sibanye is betting that this innovative technology propels South Africa towards a more sustainable, low-carbon hydrogen future. 

Under the strategic watch of CEO Neal Froneman, Sibanye-Stillwater (SSW) has established itself as one of the world’s largest primary producers of platinum, palladium and rhodium, and is a top tier gold producer. It also produces and refines iridium and ruthenium, nickel, chrome, copper and cobalt. The Group has recently begun to build and diversify its asset portfolio into battery metals mining and processing, and is increasing its presence in the circular economy by growing and diversifying its recycling and tailings reprocessing operations globally.

Froneman recognises the potential of hydrogen as a clean energy source. Through SSW’s iXS programme, powered by Savant, this strategic investment in BurnStar demonstrates his confidence in supporting South African innovation with global applications.

Savant Venture Fund, known for its focus on transformative technologies, views BurnStar’s clean hydrogen production as a game-changer in the global energy landscape. This investment aligns with Savant Venture Fund’s mission to accelerate the adoption of sustainable technologies.

Francois Malan, Partner at Savant Venture Fund, shares his enthusiasm: “We are thrilled to be investing in Johan Brand and his team as they commercialise what we believe to be a world-leading technology in clean hydrogen production. The BurnStar solution has strong commercial promise in both industrial processing application and clean energy storage. This investment will demonstrate the first step towards paving the way for guilt-free hydrogen™ applications, both locally and internationally.”

While some may be weary of the hype, the fact is that while we may not need 600 million, 500 million, or even 300 million tons of green and blue hydrogen by 2050, we currently use about 100 million and, of that total, barely 1 million is clean, so the opportunity is still attractive. 

And so far, few would bet against Froneman in pulling off another coup. 

This article first appeared in Catalyst, DealMakers’ quarterly private equity publication. 

DealMakers is SA’s M&A publication.

www.dealmakerssouthafrica.com

Navigating the crucial turning point for M&A in Africa

From global economic headwinds to regional challenges, our world has experienced a plethora of disruptions of late, which have invariably reshaped the contours of deal-making and investment. As significant changes ripple across continents, there is one that has begun to emerge as a focal point of interest: Africa.

With at least half of all global impact investment capital being injected into Africa, countries like Egypt, Kenya, Nigeria and South Africa stand as beacons, drawing significant attention. 

This investment flow has been most notably propelled by certain key sectors.

With escalating expenses in healthcare, key players are harnessing the power of digital health technologies – not only to curb soaring costs, but also to enhance their competitive edge and broaden the reach of medical services across the continent. Concurrently, there’s a palpable excitement among patients and healthcare consumers, who have swiftly embraced the numerous digital health solutions that emerged in the wake of the COVID-19 pandemic. This has resulted in pharmaceuticals, biotechnology, and medical services standing out as frontrunners for M&A activity in the sector, particularly within the private equity segment.

African fintech is also pulling in substantial investments, drawn by commitments to financial inclusivity and the promise of healthy returns among the continent’s youthful population. However, regulators have flagged concerns over consumer protection, data privacy and protection, and the competition implications of the digital economy – issues that must be addressed if the sector is going to continue to be attractive to international investors. 

The pressing need to rectify long-standing energy shortages throughout Africa, coupled with the shift in global priorities, has also amplified the focus on the renewable energy sector, making it a pivotal driver for M&A activity in the region. As several African nations grapple with intermittent power supplies and an over-reliance on fossil fuels, there is a growing recognition of the potential that renewable sources such as solar, wind and hydro present. 

As a result, M&A activity has surged, with conglomerates and startups alike seeking partnerships and acquisitions that can expedite the transition to cleaner energy solutions – presenting a dual opportunity for investment and impact.

Africa’s telecommunication sector has also emerged as one of the fastest-growing industries on the continent, and is poised to drive considerable economic growth in the future.

Another sector that has seen a resurgence is mining and minerals, as the need for essential minerals like copper, nickel, lithium and cobalt is on the rise globally, although commodity price deterioration and uncertainty are having a significant impact.

While these sectors highlight current M&A opportunities in Africa, other recent developments provide hope amid the challenging global economic conditions. For example, the African Continental Free Trade Area (AfCFTA) is gaining unprecedented momentum. Having garnered commitment from 54 nations and been ratified by 46, AfCFTA is poised to emerge as the world’s most expansive free trade zone. 

Its comprehensive protocols, ranging from goods and services trade to intellectual property and investment frameworks, are either already operational or progressing auspiciously. The anticipated dividends include a boost in intra-African commerce, the fostering of regional value networks, empowerment of African enterprises, and a reinvigorated stance on economic diplomacy.

Recent moves by BRICS to invite Ethiopia and Egypt (among others) to join South Africa, Brazil, Russia, India and China, collectively, to other trade agreements may pave the way for a more influential African voice in global politics, institutions and financial systems.

As the African investment landscape evolves, the emphasis on environmental, social and governance (ESG) considerations will intensify. The global pivot towards sustainable practices is undeniable, and businesses now face scrutiny not only for their contributions to sustainability but also the authenticity of their commitments, with accusations of ‘greenwashing’ under rigorous review.

Furthermore, the investor lens is adapting, particularly from an international stakeholder’s perspective. They are progressively gauging the long-term environmental and societal impacts of ventures they fund. It is evident that ESG considerations will be instrumental in steering future M&A strategies, influencing the choice of acquisition targets, valuation methods and risk assessments. Both buyers and sellers will find it imperative to showcase their ESG prowess, with these credentials increasingly serving as a barometer for an organisation’s ethos and growth potential. 

Notably, regulatory, public interest and local ownership considerations, as well as shareholder activism, are playing an increasing role in M&A. This has added additional burdens that parties ought to consider, although these are not usually insurmountable. 

Africa stands on the precipice of significant change, characterised by a confluence of dynamic factors that signal both formidable challenges and unparalleled opportunities. The shifts in the M&A terrain are not merely transactional, but transformative, marking a pivotal moment in the continent’s economic trajectory. 

Those equipped with the foresight to discern and adeptly engage with these changes will not only witness, but actively shape the next exciting chapter in Africa’s economic odyssey.

Tholinhlanhla Gcabashe is Co-Head of M&A and Cathy Truter is Head of Knowledge | Bowmans

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

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

Ghost Bites (Afrimat | Ellies | MC Mining | Tharisa)

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



Afrimat goes large with Lafarge (JSE: AFT)

The Competition Tribunal has approved the deal

Afrimat has a strong track record of value creation, with acquisitions having significantly boosted shareholder returns over the years. The market always pays attention when Afrimat announces new deals.

The acquisition of 100% of Lafarge South Africa was first announced in mid-2023. These things take time, particularly due to the regulatory approvals required along the way. It’s very important news that the Competition Tribunal has now approved the transaction, which makes the deal unconditional with a closing date of 24 April.

This is a significant step in the construction materials strategy, expanding the quarry and ready-mix operations nationally. There are various other strategic opportunities available to Afrimat from this deal, including entry into new value chains. Most of all, Afrimat will look to drive efficiency in the business and achieve a positive operating profit contribution.

CFO Pieter de Wit has been appointed as full-time Integration Manager for this process.


Farewell, Ellies (JSE: ELI)

Bad strategy leads to even worse outcomes

Sadly, when a company allows technological progress to overtake it, things can go wrong. Ellies (JSE: ELI) has been going from bad to worse and the final attempt to save the company was a renewable energy acquisition that failed to be completed. In any event, it did look as though they were going to overpay for the asset, which is why the funding couldn’t be raised. Even if the deal had gone ahead, there’s no guarantee that shareholders would’ve done well from it.

With the group having entered business rescue in early 2024, there weren’t many options available to the company. All hope has now been lost, with the company confirming that it will be liquidated. This is because there is “no reasonable prospect” of the group being rescued.

It’s always a sad day when a company goes to zero, especially a listed company that has been a household name.


The independent board at MC Mining throws in the towel (JSE: MCZ)

Goldway has achieved quite the victory here

After many back-and-forth announcements, Goldway has won the battle against the MC Mining independent board. It’s been quite a thing to witness, with Goldway using provocative language and trying hard to create doubt in the minds of shareholders over what the MC Mining board has been saying.

It worked, with enough acceptances of the Goldway offer to be able to declare it unconditional. This has driven a complete turnaround in approach by the MC Mining independent board, with a recommendation to shareholders to accept the offer due to the limited liquidity in the stock (assuming it remains listed) and the practically zero likelihood of an alternative bid on more favourable terms. The board also notes that if the offer isn’t accepted, there’s a chance of shareholders being stuck in an unlisted entity.

Kudos to Goldway. It’s been quite the masterclass in M&A strategy.


Tharisa achieves consistent PGM output (JSE: THA)

Chrome output is down from the previous quarter’s record production

Tharisa has released its production update for the second quarter of FY24, which covers the three months to March 2024.

PGM output was pretty consistent at 35.3koz vs. 35.7koz in the first quarter. The PGM basket price was also remarkably flat for the quarter, coming in at $1,343/oz vs. $1,344/oz in the first quarter. For sure, up is better than sideways, but consistent execution is a big part of building a successful mining group.

Chrome output came in at 402.7kt, which is well down on 462.8koz in the first quarter – admittedly a record quarter. Chrome prices were fairly steady at $286/t vs. $291/t in the first quarter.

Across both commodities, production guidance has been maintained for the full year.

Although debt came down a bit in the past three months, the drop in cash was larger. This means that net cash reduced from $94.9 million at the end of December 2024 to $70.6 million at the end of March. The management team remains confident though, with a $5 million share repurchased announced in March.

The Karo Platinum Project development is focusing on smaller work packages to limit the amount of capital required, while the company works on putting together the necessary third-party financing to deliver the first phase into production. If PGM prices keep improving, then I think there’s a good chance that they will put the hammer down on the project and accelerate it.

Finally, the group officially launched Redox One at the Africa Energy Indaba. This is an initiative to develop long-term energy storage solutions utilising the commodities mined by Tharisa. They cleverly call this a “mine-to-megawatt” strategy.


Little Bites:

  • Director dealings:
    • A director of a major subsidiary of OUTsurance (JSE: OUT) has bought shares in the company worth R583k.
  • After 13 years on the board and 5 as Chairman, Abiel Mngomezulu will retire from the board of Merafe (JSE: MRF). Ditshebo Stephen Phiri will take the role of Chairman after the 2024 AGM.

Ghost Wrap #66 (MultiChoice | Grindrod Shipping | MC Mining | Sanlam)

Listen to the show here:

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 focused on recent M&A news across various sectors:

  • MultiChoice’s R125/share mandatory offer from Canal+ and the potential strategic direction going forward.
  • Grindrod Shipping’s selective capital reduction and intended delisting, leaving Taylor Maritime as the sole shareholder.
  • MC Mining’s battle with Goldway and the surprising number of offer acceptances.
  • Sanlam’s clever deal in India to gain a more strategic position in Shriram.
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