Unlock the Stock is a platform designed to let retail investors experience life as a sell-side analyst. Corporate management teams give a presentation and then we open the floor to an interactive Q&A session, facilitated by the hosts.
In the 31st edition of Unlock the Stock, we welcomed WeBuyCars to the platform for the first time. With much excitement ahead of the listing of this group on the JSE in April, the management team gave current and prospective investors an opportunity to ask questions about the business model and financial performance.
As usual, I co-hosted the event with Mark Tobin of Coffee Microcaps and the team from Keyter Rech Investor Solutions. Watch the recording here:
Get the latest recap of JSE news in the Ghost Wrap podcast, brought to you by Mazars:
Brait placed R900 million worth of shares in Premier (JSE: BAT)
This represents 11.6% of total Premier shares in issue
When Brait initially told the market that it wanted to reduce its stake in Premier to raise cash, the intention was to unlock R750 million through the placement. Thanks to strong demand for the shares, Brait subsequently increased the placement size to R900 million. Even at that level, it was significantly oversubscribed.
The price at which the shares were placed was a 6.7% discount to the 30-day VWAP, which under the circumstances is quite good I think. You have to remember that a whopping 11.6% of Premier shares in issue were sold through this process. Doing that through the order book on the JSE would almost certainly have been a far worse outcome.
Brait’s stake in Premier reduces from 47.1% to 35.4% as a result. The free float of Premier increases from 22.0% to 33.6%.
Brait’s share price closed 4.5% higher on the news. When a company is trading at a deep discount to underlying assets, turning those assets into cash inevitably helps to close the discount.
Copper 360 moves ahead with Nama Copper (JSE: CPR)
The due diligence has been successful
Copper 360 announced the acquisition of Nama Copper Resources in November 2023. The envisaged price was R200 million, subject to a four-month due diligence process.
The due diligence went well, with R140.5 million paid to date under the deal and a management team having been appointed. A further R9.5 million is payable in the next two weeks.
The change to the deal is that Mazule, the seller, is no longer the offtake partner. The final R50 million owed to them will therefore be paid in cash across three monthly instalments over March to May 2024. Prepayments from the new offtake partner (Fujax UK) will fund these payments. The prepayments over the next few months will be subtracted from amounts due by Fujax over five years, with interest on the remaining balance applied monthly.
Remgro: firmly in the wrong direction of travel (JSE: REM)
What has gone wrong at Heineken Beverages since the Distell deal?
Remgro released results for the six months ended December 2023. It really hasn’t been a happy time, with the intrinsic net asset value (INAV) per share down by 4.6% to R236.95 in the space of just six months.
The share price? That’s at R130.98, a discount of 45% to the INAV. You can compare this to Sabvest below, trading at a discount of roughly 37%. There’s no way of escaping a discount to INAV for these groups; it’s just the extent of the discount that varies.
Unlike at Sabvest, Remgro accounts for some of its investments on a consolidated basis. The group reports headline earnings, but I just don’t think that’s very helpful for an investment holding company, unless you’re digging into the earnings of the underlying portfolio companies.
Speaking of which, there’s trouble at Heineken Beverages. In the comparable period, Distell’s contribution was R517 million in headline earnings. After the deal, Heineken Beverages managed to contribute a spectacular loss of R208 million, while Capevin contributed R57 million. That’s really bad. Remgro has now impaired the investment in Heineken Beverages by R3.5 billion.
There are other reasons for concern as well, like the entirely uninspiring performance of Mediclinic and the pressure on earnings at CIVH due to higher finance costs. TotalEnergies also recognised a negative fair value adjustment on its Natref stock in this period, with Remgro suffering a portion of that.
This is an awkward set of numbers for Remgro that gives the market very little (if any) confidence about the recent dealmaking track record.
Sabvest Capital releases its financials (JSE: SBP)
This is the first drop in NAV on a one year basis in twenty years
Sabvest is seen as one of the better investment holding companies on the JSE. It still trades at a discount to net asset value (NAV) per share though, with the share price at R69.00 vs. NAV per share of R109.36 as at the end of December 2023. This is despite having a portfolio of thirteen unlisted vs. three listed investments. Generally, having assets with no other access points on the market drives a lower discount to NAV. Even then, it’s tough for these types of structures on the local market.
The company accounts for its investments at fair value, which means growth in NAV per share is the measure of success. The 15-year compound annual growth rate (CAGR) in NAV per share is 17.2%, excluding reinvestment of dividends. Including reinvestment, it comes in at 18.5%. This is a strong track record.
Over 3 years and 5 years, the CAGR in NAV per share is 13.7% and 13.3% respectively.
Aside from being caught out by the pain at Transaction Capital (in which Sabvest has an important stake), the other significant knock was felt in ITL. This is the Intelligent Labelling Solutions business, which saw disappointing retail demand in the northern hemisphere among various other challenges.
These problems (along with the broader macroeconomic challenges in South Africa) led to a poor year for NAV growth, coming in at a 0.7% decrease. This is the first drop in NAV per share in a single period for over 20 years! It won’t do the CAGR track record any favours and they will certainly hope that this won’t be repeated. They expect to “resume satisfactory growth in NAV per share” in 2024.
The total dividend for the year of 90 cents was in line with the prior year. Share buybacks for the year came in at R11.8 million vs. R9.5 million the prior year.
The market has spoken re: WeBuyCars (JSE: TCP)
Transaction Capital’s pre-capital raise is complete
Transaction Capital had a tough day on the market, closing 7% lower after announcing the results of the pre-listing capital raise for WeBuyCars. R902.7 million was raised and the placement was priced at R18.75 per share in WeBuyCars.
The market probably didn’t like this because Transaction Capital offered shares at between R21.08 and R24.54 per share and investors weren’t interested at this price. The bookbuild was oversubscribed at R18.75 per share, but Transaction Capital elected not to accept all bids, so the amount raised was at the bottom end of guidance.
The implied market cap based on this pricing is R7.82 billion for WeBuyCars. I must be honest that I’m not sure how they expected to get up to 30% more than that in terms of valuation, which was implied by the upper end of the pricing range in the initial announcement.
A R7.8 billion valuation looks decent to me!
You can watch the recording of the recent Unlock the Stock event featuring the management team of WeBuyCars here:
Little Bites:
Director dealings:
An associate of a director of Quantum Foods (JSE: QFH) has bought shares worth R5.44 million. The price paid was R10 per share and this was an off-market trade.
Des de Beer has bought another R1.66 million worth of shares in Lighthouse Properties (JSE: LTE).
A director of Standard Bank (JSE: SBK) bought shares worth R187.5k.
An associate of a director of Libstar (JSE: LBR) bought shares worth R144.5k.
Shareholders in Marshall Monteagle (JSE: MMP) voted unanimously in favour of the disposal of Stromesa Court.
Few things in life are sure bets and that’s as true in the world of cycling as it is in the world of investments.
Ask sprint champion, Mark Cavendish, who spectacularly crashed out of the Tour de France in 2021, just as he was about to overtake Eddie Merckx’s legendary record of 34 stage wins. (Ouch.)
That said, there are rare instances in which the golden goose does lay a golden egg (or yellow jersey) and the government’s R500 000 tax-free savings allowance is one of them.
Introduced in 2015 to help stimulate a savings culture, it provides South Africans with an opportunity to invest up to R36 000 a year in a Tax-Free Savings product up to a lifetime maximum of half a million rand.
Since helping investors to achieve financial security is what gets the Fedgroup team up in the morning, we’re big fans of any initiative that incentivises South Africans to save. Especially one that carries no tax. Yet oddly, the Tax-Free Savings Account (TFSA) seems to be perceived as a starter product for novice investors or young professionals rather than the gift it is for anyone with an investment portfolio.
Investment gold
However, let’s be clear: a golden egg is not necessarily a golden ticket to awesome returns.
Not all tax-free products are created equal, and, like all investments, it takes some homework to understand the different structures and costs associated with the different TFSAs out there.
If the objective is to achieve the highest net return, then an investor’s challenge is to find the sweet spot between higher-risk equity products that are susceptible to market volatility and fixed-rate TFSAs that offer lower, but more stable, returns.
They also need to be watchful that their tax savings aren’t being eaten (in some cases, devoured) by product fees, which can have a significant cumulative impact on a TFSA’s value over time.
It’s the climb
Time is one of the many things we think about differently at Fedgroup. Most TFSAs are marketed as stand-alone investments to fund some of life’s short and medium-term expenses, like that big fat Plett wedding or mid-life Harley Davidson. And, though they certainly can do that, we’d argue there are more suitable investment products out there to meet those milestone moments.
To realise the full potential of a TFSA, it needs to be viewed as a long-term investment, as the government presumably intended. Particularly since even those who can put away the full R36 000 every year will take at least 13-odd years to reach the R500 000 threshold. And, more likely, it’ll take a couple of decades or more to hit the max. So, it makes sense for investors to recognise they’re in it for the long haul and sit back to enjoy the full tax break and benefits of compounding returns.
That’s why we developed a TFSA that’s geared, not for rainy days, but to grow wealth over the long term – as part of a properly diverse portfolio – and give our investors financial peace of mind for life.
Pushing the envelope
Stability is always our North Star and, in this instance, we opted for a specialist endowment-based product with zero fees, that has a couple of significant advantages.
First, because its underlying assets are not tied to market sentiment, it is counter-cyclical and able to deliver consistent, market-beating returns. (In fact, current returns on our product don’t just beat the prevailing bear market, they have delivered over 11% net of everything over the past year.)
Second, we’ve developed a product that charges no investor fees as we believe there should be no unnecessary erosion of either the tax-free benefits or investor returns.
To simplify things further, thanks to its endowment structure, our TFSA doesn’t form part of an investor’s estate so, if the worst happens, beneficiaries receive the proceeds faster. This will give them access to funds to cover costs and ongoing expenses much quicker in the immediate aftermath.
Just as Tour de France fans have their favourite cycle legends, investors have their preferred TFSAs. In both cases, they are free to back a different winner at any time, particularly as they see advances in performance.
So, whether you already have a TFSA in your portfolio, or are thinking about investing in one, you might want to check which ones are sprinting ahead.
Fedgroup is a specialist financial services provider with a legacy of putting people before short-term profit. For over 30 years, we’ve delivered market-leading financial solutions that not only enhance value for our clients, but remain straightforward, transparent and easy to understand.
Westbrooke Yield Plus just achieved its strongest annual performance since inception, showing why private debt is becoming an increasingly popular asset class for investors seeking higher yields.
Over the past 12 months, an investment in the JSE Top 40 would’ve lost roughly 4% of its value as measured in rands. It’s even worse when expressed in dollars, with the rand having depreciated from R17.90 to R19.00 against the dollar in the past year. In global terms, the wealth of South Africans was eroded last year, just as we’ve seen in years prior.
This is a very serious problem for local investors. South Africa’s economic and political future is uncertain to say the least. Although risk is part of any wealth creation journey, the problem is that the returns simply aren’t coming through to make up for the risks.
This drives South African corporates and individual investors to look offshore for opportunities. Global public markets (like the Nasdaq) are exceptionally volatile, especially in the technology sector and other “hot money” areas of the market. This means a bumpy ride, which isn’t suitable for all investors. Even for those with higher risk tolerance, a sensible approach to portfolio construction would include some lower risk assets that carry appealing yields.
Thankfully, in this environment of higher interest rates, attractive yields still exist. In 2023, Westbrooke Yield Plus enjoyed its strongest performance since inception, with a net investor return of 9.2%. That return is measured in GBP, so the rand return was even stronger.
To achieve yields of this level in so-called “hard currency” demonstrates the value of looking beyond equity and bond exposures.
Why do equities tend to underperform when rates move higher?
When interest rates are sitting at relatively high levels, equities tend to deliver disappointing results to investors. This is because of two major factors.
The first is that debt costs go up, so there’s simply more economic value flowing to lenders than before. Equity holders are getting a slice of a smaller pie. To make matters worse, higher rates are often due to elevated levels of inflation. This leads to enlarged balance sheets and a need to raise funding for these balance sheets, often from banks. This is why bank earnings tend to improve during these times and corporate earnings come under pressure as rates move higher.
The second is that higher yields drive a higher required rate of return, which means equity valuations come under pressure. The impact isn’t felt equally across all companies, as those with strong current cash flows are less severely impacted than growth stocks that are typically valued based on cash flows to be earned several years in the future. This drives substantial volatility in markets that have a heavy tilt towards growth stocks, like the US market.
Do bonds make up for this?
Government bonds are the traditional source of diversification and yield in balanced portfolios. This doesn’t mean that capital values are safe – far from it, in fact. When rates are volatile, bond values can change significantly. The only way a bond investor has reasonable certainty over returns is by holding a bond until maturity, which means locking in the capital for several years. If liquidity is needed before then, the investor is taking significant risk on the pricing of the bond.
To add to these challenges, government bonds pay a lower yield than private debt funds. This is a function of risk, as the basic principle in a stable market is that the government is the lowest risk borrower around. UK 10-year bond yields are currently sitting at just over 4%, which happens to be very similar to the yields on US 10-year bonds at the moment.
The question for an investor is whether this yield is an attractive enough reward for locking money up for 10 years or facing substantial risk to capital values. Westbrooke Yield Plus and its return of 9.2% gives food for thought, particularly as it has defined liquidity mechanisms as well. The fund targets a return of cash plus 5% to 7% per annum, with cash defined as the Bank of England Base Rate. Over the course of 2023, that base rate increased from 3.50% to 5.25%. This means a targeted return well in excess of what government bonds are offering.
These are lucrative yields for investors, particularly measured in pounds sterling rather than rands. Of course, assessing this return requires a proper understanding of the risks in private debt funds like Westbrooke Yield Plus.
A portfolio of private debt exposure
To achieve these yields, Westbrooke Yield Plus lends to a portfolio of private companies. The key here is to achieve appealing risk-weighted returns, but mitigate private debt exposure. Banks are generally not able to service this market effectively, creating an opportunity for a private fund to step in and make selected loans to private opportunities that meet the requirements.
The fund currently has around 48 underlying loans, with a 56% weighted average loan-to-value in the underlying businesses. No individual loan exceeds 7.5% of the fund. As at the end of December 2023, there were no loans in default and there was one real estate loan on the watch list, representing 0.3% of the net asset value of the fund. This is where loan coverage is essential, as well as the underlying commercial terms of the deal. In cases where loans do end up in default, private debt funds aim to have sufficient loan-to-value coverage and other protections to recover all or most of the loan.
The average weighted loan term in the fund is currently 22 months, with almost half of the loans in the fund maturing during the next year. This short-term nature of the debt is important to balance the risk-return characteristics. Finding enough high-quality opportunities can therefore be a challenge, requiring a strong team on the ground that understands the market. Westbrooke addresses this by having experienced resources in the UK who manage the portfolio and execute transactions.
In terms of sector exposure, 70% of the portfolio is real estate backed and 30% is corporate backed. Within the real estate portfolio, commercial property is nearly half of the exposure, with hospitality and mixed-use contributing 16% and 20% respectively. The rest lies in residential and student properties. This mix of exposure is important in managing the risks in the fund.
Can the strong returns continue?
Naturally, there are no crystal balls here. Any investment has elements of risk and this is no different. Importantly though, it’s possible to look at the current macroeconomic situation and form a view on the near-term rate cycle.
After much exuberance in equity markets about the potential for rate cuts as early as next month, expectations have had to come back down to earth. Inflationary risks are still present and the general sentiment in the market is one of “higher for longer” when it comes to rates. For private debt funds that properly manage their risks, this is good news as it suggests another year of appealing returns could be ahead.
To manage the risk of a decrease in rates in the latter part of this year, Westbrooke Yield Plus is seeking to increase the proportion of fixed rate loans in the medium term. Ideally, a fund wants to have floating rate loans as rates increase and fixed rate loans as they decrease.
Perhaps most importantly, the interest rate volatility continues to create a dealmaking environment that rewards the information asymmetry that is generated from extensive experience and relationships in the UK market. With the existing book in good shape and market conditions continuing to offer favourable opportunities, 2023’s record year is a strong foundation for investors to be rewarded once more in 2024.
Westbrooke is currently accepting trades for the quarter ending March 2024, with applications closing on the 27th. To learn more or invest, visit www.westbrooke.com/yield-plus or contact their team on info@westbrooke.com
Founded in 2004, and with offices in South Africa, the UK and the USA, Westbrooke is a multi-asset, multi-strategy manager of alternative investment funds and co-investment platforms. Our purpose is to preserve and compound our clients’ wealth to cement their future prosperity.
Get the latest recap of JSE news in the Ghost Wrap podcast, brought to you by Mazars:
Brait to sell down R750 million worth of Premier shares (JSE: BAT)
Several bookrunners have been appointed to place the shares
It’s time for RMB, Investec and Standard Bank to get their little black books out. Brait has appointed these institutions as joint bookrunners for the placement of R750 million worth of shares in Premier Group.
In simple terms, this means that Brait is selling down its stake in Premier (which is also a listed company) to the extent of R750 million. To try and do this through the order book on the JSE would obliterate the Premier share price and take a long time, so it’s better to do this via a placement of the shares with interested parties. The banks effectively act as matchmakers here, tapping into their institutional contacts to see who wants more stock.
Brait will be using the proceeds for “capital optimisation” purposes, which sounds like a fancy way of acknowledging that they need money to reduce debt and to assist with negotiations around the exchangeable bonds etc.
Shocked and appointing a committee: no, it’s not our president – it’s Bytes! (JSE: BYI)
I’ll start with the good news, which is that Bytes released an encouraging trading update for the year ended 29 February 2024. Gross profit and adjusted operating profit both grew by over 12% – and that’s measured in GBP. Gross Invoiced Income was up more than 25% though, so I interpret this as meaning there is margin pressure in the system i.e. they are working harder for every additional bit of profit.
The cash position at year-end is around £89 million.
Separately, the company released a strongly worded announcement regarding disgraced ex-CEO Neil Murphy. In an astonishing governance failure, he executed 119 undisclosed transactions in the company shares. Whilst there could never be an excuse for this, it’s made even worse by the fact there during this time, there was an investigation into a share dealing disclosure problem by someone else related to the board!
The board is “shocked” and has appointed a committee to investigate. It really does sound like the ANC wrote the announcement. The jokes continue to write themselves when you learn that the interim CEO, who we hope will bring more clarity to things, is a woman named Sam Mudd.
When a company is trading on a Price/Earnings multiple well north of 30x, you just cannot afford governance disasters like these.
Discovery’s normalised earnings head the right way (JSE: DSY)
Despite this, the share price closed 7% lower
Discovery’s share price has returned -9% over five years, excluding dividends. The dividends unfortunately aren’t very exciting either. I will genuinely never understand the appeal here, with the share price trading at the same levels seen in 2015. If the lost decade was a share price chart…
Anyway, the good news in this trading statement is that normalised profit from operations for the six months to December 2023 increased by between 10% and 15%. Normalised HEPS increased by between 7% and 12%. I must point out that Discovery is now reporting under IFRS 17 (the new insurance standard) and comparatives have been restated accordingly. Based on IFRS 17, base period profits were 16% lower than under IFRS 4 (the old standard).
In case you’re wondering, HEPS on a non-normalised basis was between -3% and 2% vs. the prior year, restated for IFRS 17.
New business annual premium income grew by 28%, which is perhaps the highlight of the result. Another attractive metric is that Vitality Global has grown normalised profit from operations by between 70% and 75%.
Despite the delistings trend, the JSE grew earnings (JSE: JSE)
In case you’re very confused, the JSE is a public company that is listed on its own exchange
Over the past few years, the trend in South Africa has been one of delistings of companies. Frustrated by a significant compliance burden and lack of liquidity, many small- and mid-caps have either taken themselves private or been bought out by a third party. Either way, the direction of travel is not good.
It’s not just the JSE dealing with this issue. If you look globally, there’s a shift towards private capital deals rather than listings.
To try and mitigate the impact, the JSE has been investing in other services. Non-trading income is now 36.8% of group operating income, up from 34.6% in the comparable period. This is why HEPS grew by 12.2% in the year ended December 2023, a solid result when viewed against the prevailing narrative of a reduction in activity in the local market.
I must point out that EBITDA was actually down by 2.3%. Net finance income was up 66.4%, supported by higher interest rates. Over the next 12 months, there’s likely to be an interest rate headwind or perhaps flat rates at best, so I would be very careful extrapolating the 2023 HEPS growth and hoping for it again in 2024.
The dividend is only up by 2% despite HEPS being 12.2% higher. I would treat that as another signal to be careful.
MC Mining releases the independent expert report (JSE: MCZ)
It supports the independent board’s belief that the offer is too low
The dance at MC Mining continues, with the independent board committee making the latest move. They’ve released the independent expert report prepared by BDO Corporate Finance.
The TL;DR is that the independent expert has suggested a range of A$0.214 to A$0.356. The offer price at the moment is $0.160 per share. On this basis, the expert has found that the offer is neither fair nor reasonable.
This really is such an interesting one, as it all comes down to whether the management team can deliver on the planning balance sheet activities going forward to unlock the value in the operations. If they can, then it’s possible that the offer will look opportunistic in hindsight. If they can’t, then shareholders may one day kick themselves for not accepting it.
If you are a shareholder here, make very sure you read all the documentation that has been released by both the company and the bidder.
Merafe achieved record profit in 2023 (JSE: MRF)
This is impressive under the circumstances
Despite a significant decrease in ferrochrome production, Merafe managed to increase revenue by 16% and EBITDA by 19% for the year ended December 2023. HEPS was up from 56.4 cents to 60.1 cents. The share price is trading at R1.44, so that’s quite the trailing Price/Earnings multiple!
You always have to be wary of low multiples in mining. Merafe has warned that 2024 is likely to see a slowdown in performance. Still, those who took the plunge in the past year have been rewarded with a 42 cents dividend per share for 2023, a lovely jump from 25 cents in 2023. It works out to mildly hysterical dividend yield of 29.2%!
Normalised earnings are flat at OUTsurance, but follow the cash (JSE: OUT)
There’s decent growth in the dividend
As we’ve seen across the sector, the first-time adoption of IFRS 17 makes the comparability of results quite difficult. This is why results are restated to show what would’ve happened if IFRS 17 was already in effect.
OUTsurance reports normalised earnings by segment and it’s a useful summary, showing that OUTsurance (i.e. the SA business) was down 3.4% and Youi Group (Australia) was down 15.5%. Some swings in the right direction elsewhere helped limit the damage at group level, with normalised earnings for the group up just 0.5%. These moves are all for the six months to December 2023.
Remember they sold OUTvest? That business made a normalised loss of R15 million in the previous interim period and R28 million for the full year. Thank goodness they gave up on that.
Normalised return on equity has dropped from 30.2% to 26.1%, which is to be expected when earnings growth underperforms. The cost-to-income ratio has deteriorated from 28.9% to 30.5%. Both those metrics are much better than banking groups can achieve, which tells you why those businesses try to add insurance operations to their banking strategies.
If all the “normalised” talk is making you nervous (as it usually should), then you would want to know that HEPS without normalised adjustments fell by 0.9%. The difference between this and the normalised increase of 0.5% mainly sits in adjustments for derivatives and group treasury shares.
Keep an eye on OUTsurance Ireland, where the group is investing heavily in the start-up phase. They incurred losses of R59 million in this period. Such losses are unavoidable initially, which is why it takes such a large balance sheet to incubate the launch of a business like that.
The interim dividend of 61.2 cents is up by 7.7%. That’s well ahead of earnings growth, so they aren’t shy of a higher payout ratio.
Sasfin’s earnings have fallen further (JSE: SFN)
There never seems to be a good story to tell with this bank
With several of the large banks having reported earnings for 2023, the direction of travel for HEPS was generally up. Not so for Sasfin, where HEPS has fallen by between 60.5% and 64.3% for the six months to December 2023.
This isn’t exactly a happy follow-up story to the news of the SARS legal action that broke in February. It never seems to go well for Sasfin.
The bank attributes the drop in earnings in credit impairments and fair value write downs of certain exposures. At a time when other banks were mostly in the green, this is more disappointing news.
Sibanye-Stillwater completes the Reldan deal (JSE: SSW)
Even when times are tough, bravecapital allocation is needed
In the mining game, the worst of times in the industry can be the best of times for deals. This is nothing new for Sibanye-Stillwater, with the company’s track record including various major deals at a time when nobody else was willing to buy anything.
The acquisition of Reldan in the US is by no means a betting-the-farm kinda deal, but at $155.9 million it also isn’t tiny. The price has been settled from the proceeds of a $500 million convertible bond issuance that was priced at 4.25% per annum.
The Reldan acquisition is part of Sibanye’s PGM strategy in the US. The business is broader than that though, with recycling of industrial and electronic waste that leads to the production of gold, silver, palladium, platinum and copper.
Double digit growth in the STADIO dividend (JSE: SDO)
For a growth company, the dividend is impressive
STADIO has released results for the year ended December 2023, reflecting HEPS of 24.5 cents per share. The share price closed at R4.58, so the Price/Earnings multiple is 18.7x. That’s high by JSE standards but not that high by education group standards. Still, STADIO is priced for growth, which is why the dividend underpin here is a useful part of the thesis. The share price has only managed to increase 8% over the past 12 months, so it’s just as well that there’s a dividend of 10 cents per share.
Student numbers grew by 9% in Semester 1 and 10% in Semester 2, so there’s a small acceleration there. Along with pricing increases, this drove revenue by 16%. HEPS grew by 23% as reported or 19% if you use their measure of core HEPS.
The construction of the STADIO Durbanville campus will start in 2024 if municipal approvals go ahead. It will be funded 50% through cash and 50% through long-term debt. This is an interesting strategy, as the five-year compound annual growth rate (CAGR) for contact student numbers is just 1%. Distance learning achieved 12% over the same period. STADIO is betting that if they build it, students will come.
Personally, I think they are right.
A bright year indeed for Sun International (JSE: SUI)
Records fall at SunBet and Sun City
Sun Internationalhas released results for the year ended December 2023. SunBet boasts record income and profitability and Sun City achieved record adjusted EBITDA before management fees. Overall, income was up by 7.0% and HEPS jumped by a whopping 88.1%.
Interestingly, the total dividend for the year was only 6.7% higher than the prior year. The dividend payout is based on adjusted HEPS, hence the major difference in growth rate vs. HEPS. Adjusted HEPS was only up by 4.6% to 468 cents per share.
It wasn’t all sunshine though, with Sun Slots suffering a drop in income thanks to load shedding. Casino income was down by 1%. Load shedding costs also put a dampener on adjusted EBITDA margin, which the group says would’ve been 28.9% without diesel costs vs. 28.1% net of diesel.
Net external interest costs increased by 19%, so that’s also a factor. Debt to adjusted EBITDA is at 1.7x, which is way below bank covenant levels.
The big focus, of course, is the proposed acquisition of Peermont that was announced in December 2023. Shareholders approved the deal in early March. Regulatory approval processes are now underway.
The narrative around the first few weeks of 2024 is positive, with reduced load shedding no doubt playing a role in that. Income and adjusted EBITDA are both growing.
The Peermont transaction is a risk, of course, but what else would you expect from a casino operator?
The share price is flat over 12 months, with quite the rollercoaster ride along the way. The 52-week low is R31.95 and the 52-week high is R45.29, with the current price being R38.76.
Thungela announces results and share buybacks (JSE: TGA)
After HEPS fell sharply in 2023, the company is looking to the future
If you want a nice, steady journey, then buying a single commodity mining company absolutely isn’t for you. Thungela’s revenue fell by 40% in the year ended December 2023 and HEPS was down 73%. The dividend was 80% lower. This is a rollercoaster ride, not a sleep-well-at-night investment.
To try and limit some of the volatility, Thungela made the strategic decision to enter the Australian market. Although investors tend to get very nervous when mining houses start doing deals like these (they are often a sign of the top of the market), one also can’t be blind to the infrastructure risks in South Africa.
Say what you want about the Aussies, at least they have working railways.
Despite the substantial year-on-year decline in profits, it’s certainly worth highlighting that adjusted EBITDA margin was still a meaty 28% in 2023. There was a lot of cash going around, with adjusted operating free cash flow of R6.8 billion and capital expenditure of just under R3.3 billion.
R3 billion of the capital expenditure was in South Africa and R300 million was in Australia. Although the group has taken the step across the ocean, the core is clearly still here in the land of Transnet. Having said that, another sign of the group’s international ambitions is the establishment of Thungela Marketing International in the United Arab Emirates, catering to both the South African and Australian assets.
The company has announced a share buyback of up to R500 million, With the share price down 44% in the past 12 months as earnings dropped, that makes sense.
With the volume of coal railed to the Richards Bay Coal Terminal having dropped 4.8% in 2023, the company (and the entire mining industry) is desperate for improvement at Transnet.
Transaction Capital gets the WeBuyCars capital raise underway (JSE: TCP)
There’s also an update on February trading at the company
Let’s start with the trading update for WeBuyCars for the five months ended 29 February. This gives us latest and greatest numbers as a backdrop to the pre-listing capital raise that the company is embarking on.
In February, WeBuyCars bought 14,354 cars and sold 13,132. Per-day sales volumes were in line with January and this has continued into March. Off revenue of R1.855 billion in February, they achieved core earnings of R66 million.
As you can clearly see though, inventory levels moved higher. The trend of increasing stock days has been there for a couple of years now. It was 24 days for the comparable 5 months to February 2022 and this has moved up to 30 days in the latest period, which is a pressure point for working capital.
Another interesting observation is that finance and insurance penetration has decreased from 21.4% in the comparable five months to February 2023 to 19.3% in 2024. The actual number of F&I units has gone up though from 12,588 to 12,778. There’s growth in these units, but not at the same rate as group sales.
The core cost-to-income ratio is also something to keep an eye on, up from 58.5% in the comparable five months to February 2023 to 64.0% in 2024. I would like to see this moving lower again as market conditions hopefully improve.
The group has R1.154 billion in debt, consisting of R733 million on the vehicle supermarket properties and R421 million in working capital financing.
Separately, Transaction Capital announced the opening of the pre-listing capital raise offer to qualifying investors. This is aimed at institutional investors, with Transaction Capital aiming to take between R900 million and R1.25 billion off the table in cash depending on the pricing achieved. This is the first real test of what the market will be willing to pay for WeBuyCars, so watch out for the results of this accelerated bookbuild.
Little Bites:
Director dealings:
The Foschini Group (JSE: TFG) is positioning a sale of shares by the ex-CEO as a portfolio rebalancing. In my view, if the shares were perceived to be significantly undervalued, there probably wouldn’t be a rebalancing at this price. The total sale is worth R21.4 million.
He’s back! Des de Beer has bought R7.9 million worth of shares in Lighthouse Properties (JSE: LTE).
An associate of a director of Quantum Foods (JSE: QFH) has purchased shares at R9.00 per share worth R1.3 million in an off-market trade and has agreed to acquire a further R2.56 million worth of shares at the same price.
A prescribed officer of Standard Bank (JSE: SBK) has sold shares worth R2.46 million.
The company secretary of AVI (JSE: AVI) received shares under an incentive scheme and sold the whole lot for R153k, not just the taxable portion.
Two directors bought shares in Libstar (JSE: LBR) to the value of R111k.
MTN Rwanda (JSE: MTN) released results reflecting service revenue up by 11.2% and EBITDA up by 6.8%. EBITDA margin contracted by 190 basis points to 46.4%. Due to higher financing costs, profit after tax fell by a nasty 28.9%. To make it worse, capital expenditure increased by 20.8%. The net impact was a 12.8% decrease in free cash flow.
South32 (JSE: S32) has announced some unfortunate weather-related news. Operations at Groote Eylandt Mining Company have been suspended because of Tropical Cyclone Megan. This impacts the Australian manganese business. If the spiders and snakes don’t get you in Australia, the weather will.
Eastern Platinum (JSE: EPS) has warned the market of the possibility of a late filing of its financials for the year ended December 2023. This is due to delays in the audit while the whistleblower allegations from April 2023 were investigated. The allegations were unsubstantiated in the end, so this is just a timing thing that could lead to a suspension in trade in the company’s shares if they can’t get the filings done in time.
Ibex Investment Holdings (JSE: IBX), previously Steinhoff Investment Holdings, released a cautionary announcement related to a potential offer to holders of the preference shares in the company to repurchase their shares.
2023 saw the 100th anniversary of The Walt Disney company – and a year of successive box office flops and award snubs. After a century in business, is everything still alright behind the picture-perfect facade, or are the cracks starting to show in this castle?
Where once there were Oscars
Disney has won a total of 150 Academy Awards between 1932 and 2024. Of these, 32 were won by Walt Disney personally. These awards were won across various categories, from Short Films to Best Original Song, Special Effects and Best Animated Feature.
The Best Animated Feature category is a relatively new addition to the Academy’s lineup, having only been introduced in 2002 for films released in 2001. Before the introduction of this special category, Disney’s signature animated films, including their respective songs, soundtracks, editing and effects, were judged alongside live-action films with no distinction between them. So in 1992, when Disney won Best Song for “Beauty and the Beast”, they competed against and beat the Bryan Adams hit “(Everything I Do) I Do It for You” from Robin Hood: Prince of Thieves. For me, those pre-2002 Oscar wins are a testament to Disney’s ability to make animated films of such calibre that they could compete on the same level as live action.
Following that logic, you would think that Disney would absolutely dominate the Best Animated Feature category from 2002 onwards. Unfortunately, the timeline simply doesn’t align. Disney’s “Renaissance” period, which is universally believed to have produced its best and most memorable films, was between 1989 and 1999. By the time the new Academy Awards category was revealed, Pixar Studios had taken over as the belle of the ball.
Absorbing Pixar in 2006 put Disney back on the winning streak in this category, from 2007’s Ratatouille to 2021’s Encanto, with Disney losing the Oscar only twice, to Spider-Man: Into The Spider-Verse (2019) and Rango (2012). But that’s where the good news ends. The award for Best Animated Feature, a category that you would expect an animation powerhouse like Disney to own, has continued to elude them since 2021.
Who’s eating Disney’s lunch?
This year, the Oscar for Best Animated Feature went to Hayao Miyazaki and Studio Ghibli’s The Boy and the Heron.
A legendary director with multiple award wins under his belt, Miyazaki initially retired in September 2013, only to reverse course after contributing to the short film Boro the Caterpillar. His involvement in this project reignited his passion, leading him to embark on a new feature-length endeavour. Storyboarding for The Boy and the Heron commenced in July 2016, followed by official production in May 2017. The film’s title was unveiled in October 2017, with plans for a release coinciding with the 2020 Summer Olympics.
By May 2020, 60 animators had meticulously hand-drawn only 36 minutes of the film, with no fixed deadline in sight. Production encountered numerous challenges, including setbacks caused by the Covid-19 pandemic and Miyazaki’s slower animation pace. The project was theatrically released in Japan on July 14, 2023
The release strategy is also noteworthy, as Studio Ghibli opted not to share any trailers, images, synopsis, or casting details prior to the Japanese premiere, save for a solitary hand-drawn poster. Despite this unconventional approach, the film garnered widespread critical acclaim and has amassed a global box office revenue of US$167.8 million so far.
By contrast, Disney was taking a very different approach during the 7 years it took Studio Ghibli to bring The Boy and the Heron to screen. Since 2016, they have released 13 live-action remakes of their animated IP, including such titles as Pinochio, The Lion King, Dumbo, The Jungle Book, Lady and the Tramp and Aladdin. Despite its commitment to the “remake era”, Disney also found time to release a number of original animated films since 2016, including Zootopia, Moana, Ralph Breaks the Internet, Frozen 2, Raya and the Last Dragon, Encanto, Strange World and Wish.
For those who are keeping score, that’s 20 Disney films released in the 7 years it took to make one Studio Ghibli film. This number excludes Disney’s other non-animation-related live-action releases, such as Bridge of Spies, as well as releases made by Disney-owned properties such as Pixar, Marvel and Lucasfilm (of which there were many). Of these 20 animated and live-action-remake films, only 5 have been recognised with Academy Awards.
A numbers game
When contrasting Disney and Studio Ghibli, we have to take into account that these are two very different studios. Disney is a behemoth with 225,000 employees and revenue of $89 billion in 2023. By contrast, Studio Ghibli is a relatively small fish, with 190 employees and online estimations of revenue of $23 million. The exact number isn’t important; the size differential is clear.
It isn’t plausible to expect Disney to sit around and work on one project for 7 years in the same way that Ghibli can (to be fair to Ghibli, they also released one other feature film and one short film during the development of The Boy and the Heron). Disney is a listed company with targets to reach and shareholders to placate. They need to keep the content coming. Where Studio Ghibli is betting everything it has on one horse, Disney prefers to enter as many horses into the race as it can.
Unfortunately for Disney, it seems to be the quality of the horses in the race that makes the difference here. The spate of live-action remakes has been met with almost universal disappointment from viewers and critics alike, mostly due to what many are referring to as a “wokeness” problem. This highlights one of the massive downsides of being a company that has been making films for 100 years: some of the early material didn’t age so well. Disney is trying its best to counteract the lack of diversity, female agency and representation in its earlier works by peppering their live-action remakes with well-intentioned but poorly executed token placements.
A good example of this would be the Snow White and the Seven Dwarves live-action film that is currently in production. The titular character, who is Snow White by name and description, is being played by a Colombian actress with olive skin. The seven dwarves have been replaced with seven “magical companions”. In an effort to not offend viewers at the height of cancel culture, Disney is dismantling the very core of the original story. And yes, maybe it is inappropriate in 2024 to make whiteness a feature and dwarfism a trope. But if that’s the case, we probably need to question why it is necessary to retell this story at all.
If you were hoping for more creativity from Disney in the coming years, you will probably be disappointed. The dream machine seems to be running out of steam, with a plethora of sequels on the cards in the coming years. Moana 2 and (inexplicably) a Moana live-action remake are on the way, side by side with Inside Out 2, Frozen 3 and Toy Story 5 – yes, a fifth Toy Story movie. Really.
I heard someone recently refer to Disney’s strategy over the last decade as “weaponised nostalgia”, and I really can’t find a better term for it than that. When you’re under pressure to fill cinemas and fuel a streaming platform, the one thing that seems like a safe bet is building on the stories that people have loved before. And because of the size and production power of the House of Mouse, it’s possible to stay in business even when the three main Disney feature films released in 2023 were consecutive box office flops. That kind of failure would sink an independent studio like Ghibli.
Fortunately, Disney has other streams of revenue, like the back-catalogue for licensing revenue and the entertainment parks and even cruises, helping it stay afloat – literally. Disney+ is also putting pressure, as streaming takes a very long time to become profitable. But at some point, even the life raft will spring a leak. Shareholders are expecting awards and box office hits and not getting them, and as we’ve seen with Miyazaki’s Oscar win, the competition is not exactly sleeping at the wheel.
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.
Japanese equities perhaps don’t get the attention they deserve. But their returns in the last year have put them back in the spotlight
Market commentators love their catchy phrases and tags. One you often hear today is The Magnificent Seven, a group of seven technology shares that captured the imagination last year, thanks to the hype around generative artificial intelligence (AI).
The Magnificent Seven (which by the way get their name from the famous Hollywood western of the 1960s of the same name) returned 111% in 2023, beating the S&P 500 and Dow Jones by some margin, as well as the MSCI All Country index which was up 22.8%.
Catchy terms serve a purpose (before the Magnificent Seven, there were the FAANGs, and long before that, the Nifty Fifty), but they tend to keep the spotlight on a handful of shares or a sector, when there are often other, less “sexy” markets that have also delivered great value for investors.
Interestingly, the name The Magnificent Seven gives us a clue of a perhaps less glamorous market (until recently) that’s also done very well for investors, the Japanese equity market.
Movie buffs will remind us that the Hollywood movie was based on an iconic Japanese movie called Seven Samurai. In this case, the Samurais have served investors very well.
Over 2023, the Japanese benchmark Nikkei 225 returned 28.2% for investors, while the TOPIX returned 25%.
And in February, the Nikkei 225 passed its best ever level, just below 39,000, a level last seen at the end of 1989.
Leading global investors have also seen the worth of the Japanese market. Warren Buffett’s Berkshire Hathaway last year increased its holdings in Japanese stocks, while BlackRock, the world’s largest asset manager, last year upgraded its view on Japanese equities.
What has driven this recovery in Japanese equities, a market that had underperformed for decades?
One reason is the economic policies introduced by the late Prime Minister Shinzo Abe. His administration implemented aggressive fiscal and monetary stimulus programmes and took action to improve corporate governance, making companies more accountable to shareholders.
The depreciation of the yen in 2022 helped to boost the international competitiveness of Japanese companies – although the currency has recovered some ground. While inflation in Japan picked up in 2022 and 2023, it remains lower than in other OECD countries, and the yen is still relatively cheap on a purchasing power parity basis.
In this environment, the Bank of Japan has been able to maintain a far looser monetary policy than its developed market peers, leading to increased confidence in the manufacturing and service sectors.
The Japanese equity market now represents good relative value, especially compared to US equities, based on the cyclically adjusted price-to-earnings ratios. Furthermore, the Japanese corporate sector has become the largest net buyer of its own stocks, providing an underpin to the market.
Finally, while the Japanese market may not seem as “sexy” as the US tech market, it should be noted that indices such as the Nikkei and TOPIX have significant exposure to the tech industry, through names such as Fujitsu, Hitachi, Sony and Softbank. The Nikkei also includes chipmakers such a Screen, Tokyo Electron and Advantest.
The implication is Japan will also benefit over time from gains in the US and other technology markets.
To return to the movie theme, while the Western, The Magnificent Seven is perhaps the more famous movie, its Japanese inspiration, Seven Samurai, is regarded by movie buffs as one of the most iconic movies of all time. In a similar vein, should investors perhaps look beyond the US blockbusters and embrace the quality of the Japanese market?
The Autocall is designed to provide investors with an attractive return even if the Index makes only modest returns over the investment term.
The Autocall provides exposure in US Dollars (USD) or Rand (ZAR), with a high degree of capital protection. However, capital is at risk if no early maturity occurs, and the Index has fallen more than 30% on the maturity date.
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Clientele’s earnings are impacted by IFRS 17 (JSE: CLI)
For whatever reason, they opted to give minimal detail on this in the trading statement
Clientele needed to release a trading statement because they know that HEPS for the six months to December 2023 will be between 37% and 57% lower than the comparable period. This is well above the 20% move that triggers a trading statement.
The frustrating thing is that much of this move will no doubt be attributable to the adoption of IFRS 17, which requires detailed disclosure to understand properly. The company is only going to explain the IFRS vs. operational move when interim period results are released on 22 March, so for now this trading statement isn’t helpful at all.
All we know is that IFRS 17 has resulted in a significantly higher net asset value for the group, yet earnings have been negatively impacted by the new way of measuring insurance contracts.
Libstar: a much better second half of 2023 (JSE: LBR)
The release of full-year results shows an 11.2% drop in normalised HEPS
I must begin this section by pointing out that Libstar’s normalised HEPS was down 44.9% for the first half of 2023, so to claw that back to a full-year drop of “only” 11.2% is impressive. They aren’t joking when they talk about much better trading results in the second half of the year.
Gross profit margin seemed to be the biggest source of improvement vs. the first half. It was up 10 basis points for the year, which is a major jump vs. the interim period where it was down by 210 basis points. They talk about production efficiencies and cost management as the driver of this improvement.
Looking at the year as a whole, revenue was up 5.2%, with selling price inflation and mix changes contributing +10.0% and sales volumes -4.8%. This is a similar pattern to what we’ve seen at other foods producers.
Normalised EBITDA was down 3.3% for the full year, which isn’t good news when a company has debt on the balance sheet. Sure enough, net finance costs were up 53.3%, hence why HEPS took the knock that it did.
Aside from a second half of the year that clawed back a lot of pain, the other highlight is that cash generated from operations was up 3.3%. That’s strong cash management when you consider that EBITDA was down 3.3%!
The margin improvement in the second half of 2023 has been sustained during the first 8 weeks of the new year. The group is strongly focused on finding efficiencies in its operations, including through restructuring processes where necessary.
The share price closed 5.4% higher in response to this update. Still, it’s lost a third of its value over the past 12 months.
MC Mining: offers, going concern assumptions and more (JSE: MCZ)
There’s a lot going on here
If you’ve been following the story of MC Mining, you’ll know that the company has been at the centre of a rather juicy takeover battle. Goldway wants to acquire all the shares in the company and the independent board is pushing back, saying the offer undervalues the company.
One thing is for sure: it’s a lot easier to convince shareholders of this fact when the interim report doesn’t have an entire section that draws attention to material uncertainty regarding the group’s ability to continue as a going concern. The directors have made strong statements that they believe that cash flow forecasts suggest that the group will be fine. Either way, this creates room for debate.
It also doesn’t really help that despite an 80% increase in revenue, cost of sales increased to such an extent that gross profit fell from $3.9 million to $1.1 million. The loss for the period worsened from $1.3 million to $5.8 million.
Cash and cash equivalents fell from $7.5 million to $2.0 million.
The debate around whether the Goldway offer is opportunistic or fair is going to be one to keep watching.
Montauk Renewables saw a 59% drop in HEPS (JSE: MKR)
And they make literally zero effort to help the market understand their business
Most companies on the market really try to help investors get a deeper understanding of what is going on. They release SENS announcements that give a proper narrative to the numbers, explaining the key drivers of performance.
Not so at Montauk Renewables, which does the bare minimum investor relations effort despite a market cap of nearly R13 billion.
If you have the time and inclination, you can work through the 135 pages of the annual report that was filed with the SEC (because the company is listed on the Nasdaq).
I’ll just focus on the numbers, which is all that the company does on SENS anyway. Revenue fell 15% and HEPS fell 59%.
The share price has lost roughly half its value just this year.
Oceana’s US operations are doing the heavy lifting (JSE: OCE)
This is the benefit of diversification, as local operations come under pressure
Over the past couple of periods, the highlight in Oceana’s numbers could be found in the Lucky Star business. For the six months to March 2024, it looks like the trend has changed.
For the five months to 25 February, Lucky Star’s revenue was down 8.7%. There’s a strong base effect here, as the comparable period had exceptionally high volumes as customers bought ahead of pricing increases. Another knock to the South African operations came from a 36.3% drop in fishmeal and fish oil revenue, with lower sales volumes. Production volumes also dropped as the company implemented factory upgrades, so that hit margins as well.
In the wild caught seafood segment, SA horse mackerel performance was impacted by lower catch rates and an important vessel suffering an unplanned major breakdown. Things were better in Namibia at least, with improved catch rates. Hake catch rates were below historical averages, but European demand was strong and sales volumes increased. In squid, poor fishing conditions impacted catch rates. Overall, this segment saw revenue drop by 18.4%.
We now arrive at the good news, which is that revenue in the fishmeal and fish oil business in the US has more than doubled. This was thanks to higher inventory levels and improved global pricing. This makes such a huge difference to the numbers that it far more than offsets the challenges in the South African operations. For the six months to March 2024, Oceana expects group HEPS to be at least 60% higher year-on-year, which is an incredible jump when you consider the South African side of things in these numbers.
Looking ahead to the second half of the year, Oceana expects improvement at Lucky Star. Anchovy and red eye landings between March and July will be key to the local fishmeal and fish oil business. On the global side, there are supply considerations in Peru that the market is watching carefully as an indication of pricing.
If nothing else, the detail I’ve gone into here hopefully shows you the vast array of external factors that influences Oceana’s performance in each period.
It’s interesting to see this disclosure approach from Remgro
Mediclinic is no longer separately listed, yet Remgro seems to want to continue with separate disclosure for Mediclinic due to the group’s significant contribution to Remgro’s overall value. That’s good news for investors. More disclosure is always good news.
The release focuses on the six months to September 2023 (which is quite outdated now) and comments on the outlook for the year ending March 2024, which is nearly complete.
The results for the interim period showed 5% growth in group revenue (measured in US dollars) and a 4% decrease in adjusted EBITDA. Margins went backwards in Switzerland and Southern Africa, with the Middle East moving higher. Adjusted earnings were flat at $81 million.
In other words, my overall opinion that hospital groups are unexciting investments isn’t being changed by those numbers.
The full-year outlook is for flat revenue in Switzerland, growth of 6% in Southern Africa and growth of 9% in the Middle East. EBITDA margin for Switzerland is expected to be down from 14.7% to 13% (a significant decrease), with Southern African dropping from 19.4% to 18%. The Middle East is also expected to dip at margin level, from 14.4% to 14.0%.
I really don’t understand the appeal here, but then I’m not a billionaire. They clearly see something to get excited about.
York Timber’s HEPS dropped as hard as the trees (JSE: YRK)
I still think this is an eternal value trap on the local market
York Timber is one of those companies that occasionally gets people excited, shortly before disappointing punters once again. The share price is down nearly 27% in the past 12 months. Over 5 years, it’s up 8%. I think that watching the trees grow could be a more exciting activity than being a long-term holder here.
Results for the six months to December 2023 are expected to reflect a drop in HEPS of between 62% and 67%. If you strip out the fair value adjustments to the biological assets and just focus on what they call core EPS, a loss in the prior period of 2.62 cents has worsened to a loss of between 9.98 cents and 10.11 cents.
One day, someone smarter than me at understanding the logic behind IFRS will have to explain to me why the value of the biological assets seems to have little reference to the profits (or lack thereof) that York manages to extract from them.
Little Bites:
Director dealings:
It comes through as a director dealing because the founder of the investment advisor to Aristotle Africa sits on the board at Quantum Foods (JSE: QFH), but I would see this trade as the allocation of institutional funds. Still, there’s a purchase here by Aristotle of R11.5 million worth of shares in an off-market deal at R7.75 per share.
An executive director of Richemont (JSE: CFR) has sold shares in the company worth R1.7 million.
There’s a mixed bag of approaches by directors of Lucky Star, which is part of Oceana (JSE: OCE). Three of them received vested shares and two of the directors sold in full it seems, for a total value of R1.3 million. The other director only sold enough to cover the tax and retained R553k worth of shares in Oceana.
The CEO of Argent Industrial (JSE: ART) has sold shares in the company worth R1.15 million.
A director and the company secretary of AVI (JSE: AVI) both received shares in the company and sold the whole lot, rather than just the taxable portion. The total value is around R300k.
One of the founders of Brimstone (JSE: BRN) bought N ordinary shares in the company worth R11.8k.
MiX Telematics (JSE: MIX) announced that the proposed transaction with PowerFleet has now met all outstanding conditions. The merged group, trading under the PowerFleet name, will be listed on our local market from 26 March.
Accelerate Property Fund (JSE: APF) shareholders voted almost unanimously in favour of the proposed disposal of Eden Meander Shopping Centre. They know that the company needs to bring the overall debt level down as soon as possible.
Hammerson (JSE: HMN) has completed the disposal of Union Square for £111 million.
As has been the standard approach in recent periods, Lighthouse Properties (JSE: LTE) is offering a scrip dividend alternative to shareholders. I suspect that we will see the major shareholders choose to receive shares instead of cash here.
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ARC is putting more focus on its growth investments (JSE: AIL)
Rain and Tyme Group are major focus areas, but Kropz Plc is hungry for capital
African Rainbow Capital Investments (ARC Investments) reported an intrinsic net asset value (INAV) of R11.15 per share as at the end of December 2023. This was up 12.9% year-on-year but down 2.3% from the interim period.
During the year, the group raised equity capital of R750 million. Debt in the fund was reduced by 21% to R1.775 billion and further investments were made in Rain (R81 million), Tyme Group (R76 million) and Kropz Plc (R379 million).
Both TymeBank and Linebooker reached breakeven in the past six months. Philippines-based GOtyme reached 2 million customers within 13 months.
A lot of work has been done to make the portfolio simpler, with the top 12 investments now contributing 89% of the portfolio value.
Rain is 27.2% of the fund value, with EBITDA of over R2 billion for the year ended February 2024 expected. Tyme Group is 20.3% of fund value, with breakeven achieved in December 2023 and sustained profitability expected. Kropz is 11.3% of fund value and mining is never an easy game, with the ramp-up of mining operations progressing slower than anticipated and an impairment recognised on this investment. Alexforbes is 6.6% of the fund value and has been doing well recently.
Aside from Kropz that is starting to look like an increasingly deep hole for capital, things are looking up at the group. At some point, Tyme Group will surely be IPOd on a growth-friendly market like the Nasdaq. If we are really lucky, the JSE might even get some of that action, giving us a rare thing on our market: a genuine growth asset.
Unsurprisingly, Caxton’s offer for Cognition is a modest premium (JSE: CAT | JSE: CGN)
This is because the bulk of Cognition’s value sits in cash anyway
There is finally a firm intention announcement related to Caxton and CTP Publishers and Printers wanting to take Cognition private. The price on the table is R1.07 per share, which is a premium of 2.88% over the price per share on the day before the first cautionary announcement was released.
Caxton currently owns 75.52% of Cognition’s shares.
Whilst this may sound like a cheeky offer, the reality is that Cognition is deriving the bulk of its value from cash at the moment (after the sale of Private Property) and this is more of an exit mechanism for minority shareholders than an opportunity to earn a premium on the shares. The independent board has recommended acceptance of the scheme and I’m not surprised.
Holders of 11.6% of shares in issue have indicated that they will vote in favour of the scheme.
Exxaro reports a 22% drop in HEPS for 2023 (JSE: EXX)
The good news is that there’s a substantial special dividend, though
At Exxaro, revenue for the year ended December 2023 fell by 17% and HEPS was down 22%. Although the final dividend was also lower, there’s a substantial special dividend to ease the pain. This special dividend of R5.72 (in addition to the ordinary dividend of R10.10) is because of the solid net cash position of the group.
For reference, HEPS was R46.81 per share, so even with the special dividend included there’s only a modest payout ratio here.
The coal business contributes the bulk of group EBITDA (R12.2 billion out of R13.4 billion) and earnings fell 36% as a result of revenue dropping 18%. This tells you that the energy and ferrous segments did well (up 24% and 51% respectively), leading to a smaller drop in group HEPS than would otherwise have been the case.
And in case you’re wondering, export sales fell by 2% due to lower rail performance at Transnet. To mitigate the impact, Exxaro transported export coal to alternative export ports using road transport. Some coal that would otherwise be exported had to be sold in the domestic market.
Things heat up at MC Mining (JSE: MCZ)
Goldway has responded to the “target’s statement”
Those who have been following this story will know that Goldway Capital made an offer to acquire all of the shares in MC Mining for A$0.16 per share. A potential other bidder then emerged and disappeared within the space of a week, leaving Goldway as the only current bidder in town once more.
In the meantime, the independent board of MC Mining released what is known as a target’s statement – basically a response to the offer and the recommendation to shareholders. The board recommended to shareholders that they do not accept the offer.
Goldway is allowed to respond to the target statement and they have now done so. A serious allegation has been raised by Goldway regarding a potential breach of the Corporations Act. Goldway holds more than 30% of the voting rights in MC Mining and this means that an independent expert report should’ve accompanied the target’s statement.
There are a bunch of other responses as well, with the board of MC Mining having accused Goldway of making an opportunistic bid and undervaluing the operations. This wording from Goldway made me laugh for just how matter-of-fact it is:
The Makhado Project has been at Definitive Feasibility Study (DFS) status and ‘shovel ready’ for over a decade and has never produced any coal.
This gives you a flavour of the overall Goldway response, which basically highlights that simply pointing to what the assets might be worth one day isn’t good enough. Goldway has valued them based on what the assets are producing today and what the likely outcomes are, none of which are without risk.
This, however, was my favourite jab:
The IBC (independent board committee directors) are all long-term directors of MC Mining and have never bought a share in YOUR company, despite their view that MC Mining is significantly undervalued. In contrast, the Bidder Parties have invested considerable capital in MC Mining.
The ball is now in the court of the independent board committee. Aside from why they will need to explain the alleged lateness of the independent expert’s report, they will also need to respond to this rather juicy piece of corporate finance.
Resilient’s dividend in 2023 was slightly ahead of guidance (JSE: RES)
The total dividend for the year is down 7.3%
There are two types of REITs at the moment: those that pay dividends in line with reduced earnings and those that make excuses. Resilient is one of the former thankfully, paying a dividend despite pressures from interest rates and lower distributions from investee companies.
In South Africa, the portfolio grew net operating income by 7.1% for the year. Rentals on lease renewals were 4.6% higher than expiring rentals. For new tenants, leases were up 26.5% vs outgoing leases. The blended reversion was therefore positive 7.9%, which is strong.
Resilient is also invested in a portfolio in France alongside fellow listed group Lighthouse, where several retailers with private equity structures failed in the past year. French vacancies increased from 7.2% to 9.0% by the middle of the year and reduced to 7.9% by December 2023. Resilient also has an investment in Spain, with an agreement to recently acquire the dominant regional shopping centre in Castellon on a net initial yield of 7.7%.
The group also has an investment in Nigeria, but not for much longer. Those malls are being sold to equity partner Shoprite for R1, with Shoprite taking full responsibility for the debt in the structure.
Finally, the company sold its stake in Hammerson during the year and received proceeds of R1.2 billion, having originally paid R746 million for the shares. This will be used for energy initiatives.
It’s also worth highlighting that Resilient owns 30.8% of Lighthouse Properties.
Resilient’s net asset value per share is R65.71 and the loan-to-value ratio is 35.2%. Based on the full year dividend of 406.24 cents, the share price of R46.01 is a trailing yield of 8.8%.
Standard Bank grew HEPS strongly in 2023 (JSE: SBK)
The bank took advantage of favourable conditions
As I’ve written a few times now, 2023 should’ve been a strong year for banking thanks to higher interest rates and larger balance sheets. Some banks took advantage and others lost out. Standard Bank is firmly in the former category.
HEPS grew 26% for the year, the dividend is 18% higher and return on equity improved from 16.3% to 18.8%. The cost-to-income ratio improved from 53.9% to 51.4%. It all looks very good.
The Africa business is performing well, contributing 42% of group headline earnings. Standard Bank has managed to achieve the toughest balance around: finding growth beyond South Africa’s borders but without falling foul of the risks of doing business in Africa.
Standard Bank expects 3 cuts of 25 basis points each starting in July 2024, with one 25 basis point cut in 2025. This suggests a 100 basis points decline in South African interest rates over the next year. As part of this overall bullish macroeconomic view, Standard Bank expects electricity supply and logistics constraints to both ease in the next year. I sincerely hope they are right on all three counts.
2024 return on equity is expected to be in the target range of 17% to 20%. The credit loss ratio is expected to be near the top of the through-the-cycle range of 70 to 100 basis points.
Little Bites:
Director dealings:
The group COO of Astral Foods (JSE: ARL) bought shares in the company worth R16.8k.
Woolworths (JSE: WHL) announced a change in leadership in the Woolworths Food business, with Zyda Rylands retiring as CEO of at the end of August 2024. Sam Ngumeni, currently group COO, will take over the position. He has 28 years of service with Woolworths and Rylands has retired after 29 years of service, so there’s proper institutional memory and consistency of leadership there.
South Ocean Holdings (JSE: SOH), which has absolutely nothing to do with fishing, released a trading statement for the year ended December 2023 that reflects a jump of 99% in HEPS! That means that HEPS doubled from 2022 to 2023. Full details will be available when results are released on 18 March.
Altria Group has reduced its stake in AB InBev (JSE: ANH) from 10.0% to between 7.8% and 8.1%, depending on whether underwriters exercise their options to purchase additional shares. Altria is achieving this through a combination of a public offering of the shares, as well as AB InBev agreeing to repurchase shares worth $200 million from Altria. There are no new shares being issued by AB InBev here. Only shares currently held by Altria are changing hands.
At Famous Brands (JSE: FBR), Chris Boulle looks set to take the role of chairman with effect from the AGM in July 2024. Santie Botha is stepping down after serving as chairman since October 2013.
Rex Trueform (JSE: RTO) released a trading statement reflecting a drop in HEPS of 62.2% for the six months to December 2023. African and Overseas Enterprises Limited (JSE: AOO) is part of the same group and also released a trading statement for the same period, reflecting HEPS down by 72.3%.
Southern Palladium (JSE: SDL) released its interim report for the period ended December 2023. This is firmly in development stage, with minimal revenue. The operating loss was A$3.1 million for the period.
Get the latest recap of JSE news in the Ghost Wrap podcast, brought to you by Mazars:
British American Tobacco banks £1.5 billion (JSE: BTI)
The block trade of shares in the Indian business is complete
As noted earlier in the week, British American Tobacco decided to reduce its stake in ITC Limited in India by selling 3.5% of that company to institutional investors. It certainly didn’t take long to achieve, with £1.5 billion worth of shares placed in a matter of days.
The proceeds will be used to buy back shares in British American Tobacco, starting with £700 million in 2024. The group is trying to balance this against the need for ongoing investment and share buybacks, as well as the deleveraging towards the new target range of 2x to 2.5x adjusted net debt to adjusted EBITDA.
Burstone to acquire Neighbourhood Square from Investec (JSE: BTN)
The deal is part of a right of first offer that Burstone has over certain properties
Those with good memories may recall that Investec Property Fund was rebranded Burstone some time ago. The management team of Burstone was also internalised, at great cost I might add. As part of this, Burstone was granted a right of first offer over certain properties held by Investec. This lasts for 24 months after the closing of the internalisation transaction.
Investec is selling Neighbourhood Square and Burstone has exercised the right of first offer along with Flanagan and Gerard Frontiers Property Limited, who will buy it on a 50-50 basis from Investec for a total purchase price of R380 million.
With Checkers and Woolworths as anchor tenants along with Dis-Chem, this bodes well. The property is located in Linksfield, which is an upmarket suburb of Johannesburg. The net property income for the half-share is R15.3 million, which is a yield of 8.5%. The cost of debt is assumed to be 9.35% at the moment so the property would be loss-making if fully funded by debt.
That’s just how it is for property in this market.
De Beers reports further momentum in rough diamond sales (JSE: AGL)
This is encouraging news for Anglo American
De Beers, part of the Anglo American stable, has announced the rough diamond sales value for the second sales cycle of 2024. Sales came in at $430 million, up from $374 million in the first cycle of 2024.
Cycle 2 in 2023 was $497 million, so this number is still down year-on-year.
Demand is growing in India but remains a concern in China, with the narrative across those two massive emerging markets continuing to be in favour of India in most contexts. Overall, De Beers expects a gradual ongoing recovery throughout the year.
I don’t see many silver linings at EOH (JSE: EOH)
Just because a company has survived, doesn’t mean it is a good investment
EOH has been quite the story, hasn’t it? After fighting back from the brink of death because of widespread corruption, EOH eventually had to do a rights issue to sort out the balance sheet (something I was worried about at the time, leading to me selling my speculative position before the rights issue happened).
In the post-rights issue world, it’s also not rocket science to see that EOH is unlikely to do exciting things for a portfolio. What exactly is appealing about providing technology solutions to the public sector and large corporates? This is a bright red ocean of competition, which means margin pressure is almost unavoidable.
I’m unfortunately being proven correct once more with this company, as results for the six months ended 31 January reflect a drop in continuing revenue of between 2% and 4% year-on-year, along with operating profit collapsing from R142 million to between R5 million and R15 million. If adjusted EBITDA is a metric you’re willing to use, that fell from R171 million to between R90 million and R105 million.
The headline loss per share is between 10 cents and 12 cents, which is at least an improvement vs. the headline loss per share of 17 cents in the comparable period. This is thanks to having far less debt on the balance sheet than before, a direct result of the capital raising activities. The interest charge was down from R102 million to R68 million.
Weirdly, despite the drop in operating profit, cash from operations jumped from R5 million to between R190 million and R210 million. Once you read all the way through the announcement, you find that it was because of the early receipt of a large amount in the foreign operations, with the payable only settled after year-end. You have to be very careful with cut-off issues in working capital. The company did a good job around explaining this, noting that cash from operations would’ve been between R28 million and R34 million without that distortion.
If we consider momentum instead of year-on-year movements, then EOH’s six-month performance is better than the immediately preceding six months. The poor trading at the end of the last financial year continued into this half for three months or so before improvements came through.
For me, it’s all just too difficult with no obvious catalyst for major upside in performance. Those who supported the rights issue at R1.30 are in the red, with the share price currently at R1.19.
The V&A is still the jewel in Growthpoint’s crown (JSE: GRT)
Tourism in Cape Town is flying
Growthpoint released results for the six months to December 2023 and they reflect pressure on distributable income per share, with that metric down by 8.6%. The dividend followed suit in terms of percentage movement, coming in at 58.8 cents per share.
As the largest of the JSE-listed REITs, Growthpoint boasts a portfolio in which only 53.7% of total assets are found in South Africa. The offshore stuff takes the form of strategic stakes in listed funds like Growthpoint Properties Australia, Capital & Regional (also on the JSE) and Globalworth Real Estate Investments in London, with exposure to properties in Poland and Romania.
On top of all this, they have Growthpoint Investment Partners. This section of the group effectively serves as an incubator for specialist funds in areas like healthcare and student accommodation.
One of the challenges at the moment is that the loan-to-value has moved higher for both the South African calculation (34.8%) and the group calculation (42.0%). This comes at a time when debt is expensive, putting pressure on distributable income.
The V&A Waterfront remains the superstar in terms of growth, achieving a 13.7% increase in distributable income. Another positive is that the South African portfolio vacancy rate has decreased from 9.2% to 8.8%, with the office portfolio improving from 19.2% to 17.8%. That’s still very high of course, but it’s slowly getting better.
Distributable income per share fell 13.4% at Hyprop (JSE: HYP)
As we learnt earlier in the week, there’s no interim dividend
The six months to December 2023 marked an unhappy time for Hyprop shareholders. This is despite metrics that really don’t look too bad at face value, like decent growth in tenant turnover and a positive rent reversion for the period – even for offices attached to the malls!
The office vacancy, by the way, is 32.8%. The retail vacancy rate is just 1.3%.
Despite encouraging metrics, distributable income for the South African portfolio fell from R459 million to R448 million.
In the Eastern European portfolio, tenant turnover growth was in the double digits and the vacancy rate was just 0.3%. Despite what sounds like a great story, distributable income was also lower. It came in at R229 million vs. R243 million in the comparable period.
We then get to Sub-Saharan Africa, where the devaluation of the naira has worked the same magic that has hurt the likes of MTN. Distributable income collapsed from R26 million to -R8.6 million.
So, at group level, distributable income fell 8.3%. Due to the dividend reinvestment programme that led to many more shares being in issue, distributable income per share was down 13.4%. Ouch!
The full-year guidance is a drop of between 10% and 15%, so it’s an unpleasant year for shareholders like yours truly.
Based on this guidance, the risks to the naira and the group’s worries around Pick n Pay as the anchor tenant in its properties, there is no interim distribution. I assume that the worry is Pick n Pay needing to renegotiate rentals. Hopefully Hyprop holds firm, as these are high quality malls and I can’t imagine why rental concessions would be needed for those stores.
The acquisition of Table Bay Mall should be implemented before 1 April 2024, with R500 million in cash and R250 million of bank facilities earmarked for that acquisition. They paid a hefty price for Table Bay Mall and I hope it will work out.
IFRS changes make it trickier to understand Momentum’s numbers – but the direction of travel is up (JSE: MTM)
Higher interest rates have helped them
Momentum Metropolitan has been applying the new Insurance Contracts accounting standard from 1 July 2023, so this limits the comparability of the numbers for the six months to December 2023 to the prior period. To address this, the company shows restated comparable numbers.
On that basis, HEPS is up by between 46% and 51% – a very large jump indeed! If it wasn’t for the restatement, they would’ve been up by between 18% and 21%. A period with a new accounting standard is always a major distortion.
The performance was driven by better investment income (thanks to higher interest rates) and other improved operational performance metrics like persistency and sales volumes.
Orion releases its half-year financials (JSE: ORN)
This is very much still a development company
Orion’s interim report kicks off with the Prieska Copper Zinc Mine, where this period saw an update to the Mineral Resource Estimate and the commencement of trial mining and dewatering. There are 166 on-site employees already!
At the Okiep Copper Project, a drilling programme is underway with the goal of completing the bankable feasibility study by the third quarter of 2024.
There are other projects in the group as well, but they are sitting on the fringes in comparison to those two major opportunities.
Development is expensive, with an operating loss of AUD5.65 million for the period.
Ongoing drama at Quantum Foods (JSE: QFH)
The “feathers fly” pun is hard to avoid here
The Quantum Foods shareholder register is quite the hotbed of activity at the moment. After Country Bird bought the shares held by JSE-listed Astral Foods, crazy things happened to the share price and Quantum Foods had to release an announcement giving the market some idea of what was going on.
The drama continues, with one of the three major shareholders (Braemar Trading) demanding a shareholders meeting to propose the removal of the chairman of the board and two directors, with a Braemar’s nominee to be appointed as director.
Quantum Foods has taken legal advice and the view is that the demand is not legally compliant. The board will therefore not convene a shareholders meeting.
Whatever is going on here, it’s big.
In a separate announcement, Quantum announced that Country Bird Holdings has issued a letter to the board of Quantum confirming that the company has no intention of making a takeover bid for the company.
The Foschini Group is bringing a new retail brand to SA (JSE: TFG)
A franchise agreement with JD Sports Fashion has been agreed
The Foschini Group has signed an agreement with JD Sports Fashion to be the company’s exclusive retail partner in South Africa. As the name suggests, JD Sports Fashion focuses on sports and casual wear (so, yet another seller of Nike and Puma etc.) and has strong private labels as well.
One wonders how many sports retail brands a market possibly needs, as The Foschini Group already owns Sportscene, Totalsports and Sneaker Factory. Small tweaks in the style of the store, the music being played etc. seem to make a difference.
More than 40 stores will be opened over the next five years in South Africa, so that’s good news for retail mall owners!
Little Bites:
Director dealings:
The company secretary of Truworths (JSE: TRU) sold shares worth R1.6 million. This seems to mostly relate to taxes and loans due under legacy share schemes, but there’s also a comment about a desire to rebalance the personal portfolio and so that counts as a sale in my books.
The CEO of Sirius Real Estate (JSE: SRE) bought shares in the company in a self-invested pension. The value was £6.5k.
The non-executive chairman of Primary Health Properties (JSE: PMR) has reinvested dividends into shares in the company worth £2k. His wife did the same to the value of £1.2k.
Cognition Holdings (JSE: CGN) announced that the comments made by Caxton and CTP Publishers and Printers (JSE: CAT) regarding an offer having been made for Cognition are incorrect. Although an offer has been lodged with the board of Cognition, the TRP still needs to approve it.
As if the situation around disgraced ex-Bytes CEO Neil Murphy (JSE: BYI) couldn’t get more ridiculous, his very long list of undisclosed trades in the company’s shares can now be added to be Alison Murphy, a close associate. There were many acquisitions from 2021 to 2023, followed by disposals. It’s truly mind-blowing.
Southern Sun (JSE: SSU) has repurchased shares representing 3% of issued share capital since the general authority granted in September 2023. The average price per share paid is R4.97, which is slightly below where the share is currently trading.
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