Affirma Capital (formerly Standard Chartered Private Equity) has sold its 37.5% stake in Nigeria-headquartered, the GZI Group to Oppenheimer Partners. Affirma first invested in GZI back in 2012. In 2018, the private equity fund led a capital raise to fund the company’s expansion into South Africa. It was during this funding round, that Oppenheimer Partners joined Affirma as a strategic shareholder.
Netis has announced that a consortium comprising Amethis, AfricInvest, International Finance Corporation and Proparco, have taken a majority stake in the pan-African telecommunications infrastructure service provider. The value of the deal was undisclosed. Headquartered in Morocco, Netis operates in more than 15 countries including Côte d’Ivoire, Burkina Faso, Ghana, Benin, Togo, Niger, Nigeria, Gabon, DRC, Rwanda, Tanzania, Uganda, Kenya, Ethiopia and Mauritius.
Tunisia’s B2B software-as-a-services (SaaS) startup, Winshot, has raised an undisclosed six-figure investment round led by 216 Capital. The funding will allow the company to expand its marketing and sales teams and thereby enhance and expand its presence in Tunisia and France.
BluePeak Private Capital has announced a US$20 million hybrid loan to East and Central Africa logistics group, Prime Logistics. This is BluePeak’s first ESG-linked investment and will be used to advance the company’s expansion plans across Africa.
Development Partners International and Verod Capital have acquired Enko Capital’s majority stake in Nigeria’s Pan African Towers. Financial terms were not disclosed. As at August 2022, Pan African Towers had a nationwide presence of c.760 sites across Nigeria, primarily in the Southwest. Enko Capital Managers first invested in Netis in 2018.
Newtown Partners (DP World), Saviu Ventures, AAIC Investment, Axian Ventures and Health54 have invested US$2,5 million in the Cameroon health startup Waspito. This seed extension round follows on from the US$2,7 million raised last year. The company expanded to the Ivory Coast earlier this year and is now looking to access the Senegal and Gabon markets.
The complexity of mediation in South Africa has increased over the years, and technology has become a useful tool to manage various aspects of it, but human interaction is still central to the process.
Mediation has emerged as a vital alternative dispute resolution (ADR) mechanism in South Africa. It offers parties involved in legal disputes an opportunity to resolve their issues outside the traditional court system, often resulting in quicker, more cost-effective, and mutually satisfactory outcomes.
This article discusses the evolution of mediation in South Africa, and the challenges it currently faces.
The Evolution of Mediation in South Africa
Mediation in South Africa has developed over the years, in response to a growing backlog of cases in the courts, the expense and duration of court proceedings, and the desire for more client-centric dispute resolution options.
In 1984, the Department of Justice introduced the Small Claims Court, as well as legislation enabling “Mediation in Certain Civil Cases.” This enabled broader access to justice, particularly for those members of society without the means to fund significant litigation costs.
While South African courts have supported mediation as a form of dispute resolution, recent developments have introduced systemic changes, resulting in greater use of mediation.
In 2014, the Magistrate Court Rules were amended to introduce mediation as a way to resolve disputes, either before litigation commences or after its commencement, but before judgment has been given.
The South African Law Reform Commission invited stakeholders in 2017 and 2019 to provide input on the proposed introduction of an ADR system, which included mediation as a dispute resolution option. The new system would include the accreditation of mediators, establish an entity responsible for regulating mediators’ professional conduct, and introduce mandatory mediation. A discussion paper (including a Mediation Bill) is in preparation.
In 2020, Rule 41A was incorporated into the Uniform Rules of the High Court. This rule requires plaintiffs to consider mediation as a potential option for resolving a dispute. If parties elect to move forward without mediation, they must provide reasons for this decision.
Challenges Faced by Mediation in the 21st Century
Despite these positive developments, several challenges have emerged that hamper the effectiveness and accessibility of mediation in South Africa. The government’s response to the COVID-19 pandemic significantly accelerated the use of technology for remote mediation, but it has been criticised. Although technology has expanded access to mediation services, it also presents challenges related to digital literacy, security, and ensuring the confidentiality of mediation proceedings.
While online mediation offers convenience, it also raises concerns about cybersecurity, data privacy and, perhaps most importantly, the loss of personal connection and interaction between parties and mediators.
In the rapidly-evolving landscape of dispute resolution, Artificial Intelligence (AI) and automation has emerged as a transformative force, revolutionising the field of mediation and offering innovative solutions to enhance the efficiency and effectiveness of the mediation process, such as:
* Document management: AI can assist to streamline the management of legal documents, contracts and case files, making administrative tasks related to document review and organisation more efficient. This allows mediators to focus on the core mediation process.
* Data Analytics and Case Assessment: AI can analyse vast amounts of data quickly, allowing mediators to assess cases, identify patterns and predict potential outcomes more accurately.
* Scheduling and Logistics: Automation can handle scheduling, communication and logistical aspects of mediation.
Despite AI’s ability to enhance the efficiency and effectiveness of mediation, particularly in administrative and data-driven aspects, the core role of mediators to facilitate communication, build trust, manage emotions, and guide parties toward mutually agreeable solutions remains essential and cannot be replaced by technology. Successful mediation in the future is likely to involve a harmonious blend of human expertise and AI-driven support.
Over the years, disputes have grown in complexity. Mediators must adapt to handle intricate commercial, family and community disputes effectively, as well as the interplay between AI and human expertise. Training that supports the integration of AI ought to be advocated, and certification standards for mediators must be consistently enforced to ensure that parties receive competent and effective mediation that operates alongside and in conjunction with the formal legal system. Ensuring a smooth integration between mediation, technology and the courts, and fostering a culture that encourages parties to consider mediation before litigation, remains a challenge.
Addressing these 21st century challenges in mediation requires ongoing adaptation, training and innovation. It also necessitates the development of clear regulatory frameworks for online mediation, and ethical guidelines that account for digital environments. A commitment to promoting public awareness and maintaining trust in mediation as a valuable tool for resolving disputes in the modern world is fundamental.
Michael Straeuli is a Partner and Amaarah Mayet an Associate | Webber Wentzel.
This article first appeared in DealMakers, SA’s quarterly M&A publication.
Global deal activity has slowed; however, M&A remains an important strategic capital allocation lever for financial services groups.
According to Refinitiv, the American-British global provider of financial market data and infrastructure, the $2,9bn in ‘announced’ sub-Saharan African (SSA)-based merger and acquisition (M&A) deals in the first quarter of 2023 was 80% lower than the prior year, marking the lowest first-quarter value in 20 years. While deal volumes were not as severely affected, they were still 30% lower than in 2022.
This declining trend was also evident in South Africa. According to DealMakers SA, there were 118 local M&A deals, with a total value of approximately R64bn, finalised in South Africa in H1 2023. This performance was down from the 166 local deals with approximately R284bn in finalised value achieved in the first half of the prior year.
Meanwhile, the Old Mutual Corporate Finance team has been kept busy by a range of strategic M&A deals, which helped expand our capabilities and physical reach across our various businesses. Recent transactions included the acquisition of equity stakes in Preference Capital, Versma Administrators, Primak Brokerage, Genric and ONE Financial Services.
The most significant deal-making ‘moment’ over the past two years came courtesy of the company’s transformative Broad-Based Black Economic Empowerment (B-BBEE) ownership transaction – named Old Mutual Bula Tsela (Sesotho for “pave the way”) – which makes Old Mutual the first financial services provider in South Africa to facilitate an offer of shares to the black South African public (via our Retail Scheme), and the first issuer to make room for those earning lower incomes.
So, you have closed an M&A deal. Now what?
Media coverage on M&A deals seldom explores what happens once the ink on the share transfer forms has dried and the deal becomes effective. In our experience, this is the moment when the proverbial rubber hits the road. As the internal advisers to company boards and executive teams, we are called upon to provide sound and considered advice about a wide range of M&A-related matters, both before and after deals have closed.
Internal corporate finance teams help to ensure that M&A transactions are bedded down in line with the terms and conditions agreed to by all parties to the deal. One of the important roles that we play is to take observer seats on the acquired company board, to ensure that what we thought we were buying is indeed what we bought, and that the integration plan unfolds as planned.
Immediately following an acquisition, you can expect to see a flurry of workshops to ensure an alignment of corporate cultures, delegations of authority and risk appetites, among other factors. These are made easier by the relationships that corporate finance teams have established with the management team at the target firm over the course of negotiations.
During negotiations and in the process of closing a deal, the acquired firm’s management and staff would have had very limited engagement with the employees at the acquiring firm, which can make the integration process tricky. It is also worth noting that the relationship shifts from one of pre-acquisition negotiation to one of co-operation and mutual support, post-acquisition. An internal corporate finance team, therefore, plays an integral role in creating long-term value for stakeholders, both before and after the M&A transaction closes.
Aside from getting your capital allocation decisions spot on, it helps to define and agree on an internal set of criteria to ensure that everyone involved in decision-making on M&A deals understands what you are aiming for. The ultimate goal of M&A deals is to build a group that is worth more than the sum of its parts, in a way that strategic relationships and organic growth cannot achieve.
Key factors to unlock synergies post-execution of an M&A deal include embedding accountability through agreed key performance indicators and ensuring that adequate time is allowed for post-acquisition implementation before rushing headlong into the next deal.
Being part of an internal corporate finance team is incredibly rewarding. You get to see the envisioned value creation unfold a few years down the line, and to build relationships with various management teams across multiple lines of business. And, of course, you soak up the learnings on offer from the “baptism of fire” that goes with being immersed in the commercial, risk management and strategic decision making of diverse executive teams. You get to digest and onboard these experiences, carrying them with you into your next M&A deal.
Taskeen Ismail is Head of Corporate Finance | Old Mutual Group.
This article first appeared in DealMakers, SA’s quarterly M&A publication.
Many consumers, especially in the developed world, give little to no thought to where the food they eat originates from, and the intricate production, processing and distribution chains necessary to ensure that it arrives and is fit for human consumption. Knowledge of the subject is essential to sustaining and improving these processes, bearing in mind that the world’s population continues to grow. While such growth has slowed over recent decades,1 pressure on global resources continues to increase. According to the United Nations, the 46 least developed countries in the world host some of the world’s fastest growing populations. Many are projected to double in population size between 2022 and 2050, putting additional pressure on resources in countries where they are scarce.2
Of these 46 countries, a significant number are in Africa. Today, a fifth of Africa’s population (278 million people) is undernourished, and 55 million of its children under the age of five are stunted due to severe malnutrition.3
In affluent countries, access to education and training, water and electricity, funding and other elements essential to the food and agricultural value chain, is more widespread. However, in many African countries, these ’luxuries‘ are not readily available, and the daily struggles just to ’get by‘ inhibit the ability to grow and prosper.
While, in 2021, 52% of people employed in sub-Saharan Africa were active in agriculture, and roughly 45% of the world’s area suitable for sustainable agriculture production expansion was located in Africa, the continent had the lowest average agricultural productivity per worker globally.4 The low productivity and agriculture yields are attributed to a number of reasons, including, inter alia: • lack of access to inputs; • limited access to technologies and advisory services; and • low input use efficiency under rainfed conditions, where climate change and associated climate variability results in frequent droughts and floods, reducing crop yields.5
Agriculture in Africa is critical for the provision of employment and nutrition to the population, and ultimately, for wealth creation and prosperity. With almost half of the world’s suitable arable land – and with human capital that is available and expanding – there is enormous potential for Africa, provided that the necessary ingredients available are combined correctly.
According to the African Development Bank Group, current productivity levels within Africa are low. Raw produce is exported abroad, where it is refined and processed, and then sold back to Africans at a much higher price, with the majority of consumer goods being imported. The lion’s share of the economic benefit derived, therefore, remains abroad. With the correct training and resource allocation, the growing, processing and ultimate sale can all be realised on the continent, greatly increasing the value add and wealth generation per capita within Africa.
So, what does Africa require to enable this: • access to funding on terms that are commercially viable for African farmers. This should be combined with education on how best to utilise the funding to ensure that it is effectively deployed and managed. The likes of development finance institutions (DFIs) could play a pivotal role, provided that they are willing to be flexible with their payment terms, to cater for the cyclical nature of the agriculture industry;
• education and transfer of skills – this includes farming in a way that is smarter and more sustainable, with the likes of artificial intelligence and new technologies (with the assistance of local and international experts in the field) creating platforms to unlock this, to achieve greater efficiencies. In recent years, there has been a vast increase in agri-tech developed, with the likes of ‘Farmers Friend’ launched by IQ Logistica, which is a mobile application tool that allows farmers to manage their farming operations and easily view, manage and access all of their operational data to mitigate risks;
• new policies (to the extent that adequate ones are not in place), improved disaster management (to counter the risk of disease, drought, floods and other consequences of climate change) and access to emergency funding/assistance at short notice; and
• acknowledgement from African leaders that policy, education practices and resource allocation will need to be refined to enable and unlock all of the above with a resounding consensus that ‘Africa is open for business’.
It is only through continued and consistent engagement by all stakeholders that meaningful progress will be made. There is an abundance of skills and knowledge within Africa, including corporate advisors who are au fait with the landscape, that can be drawn on to assist with capitalising on the opportunity. In addition, increased cooperation with players outside the continent (e.g. multi-nationals partnering with local entrepreneurs) would assist Africa to overcome the challenges facing it and achieve a successful and sustainable outcome.
Major Trends in Population Growth Around the World – The National Library of Medicine. (https://www.ncbi.nlm.nih.gov/pmc/articles/PMC8393076/#:~:text=Continuing%20Gowth%20of%20the%20World%20Population%20at%20a%20Slowing%20Pace&text=The%20slowing%20pace%20of%20the,1980%2C%20and%205.0%20in%201950)
World Population Prospects 2022 – United Nations Department of Economic and Social Affairs (https://www.un.org/development/desa/pd/sites/www.un.org.development.desa.pd/files/wpp2022_summary_of_results.pdf)
Over 20 million more people hungry in Africa’s “year of nutrition” – OXFAM International (https://www.oxfam.org/en/press-releases/over-20-million-more-people-hungry-africas-year-nutrition#:~:text=Today%20a%20fifth%20of%20the,stunted%20due%20to%20severe%20malnutrition.)
Revitalizing African agriculture: Time for bold action – UNCTAD (https://unctad.org/news/blog-revitalizing-african-agriculture-time-bold-action)
Increasing Agricultural Productivity in Africa: Can STI help Africa to make a quantum leap in agricultural productivity? – Food and Agriculture Organisation of the United Nations (https://www.fao.org/science-technology-and-innovation/increasing-agricultural-productivity-in-africa-can-sti-help-africa-to-make-a-quantum-leap-in-agricultural-productivity/en#:~:text=The%20low%20yields%20are%20largely,and%20floods%20reduce%20crop%20yields.)
James Moody is a Corporate Financier | PSG Capital
This article first appeared in DealMakers AFRICA, the continent’s quarterly M&A publication.
Listen to the latest episode of Ghost Wrap here, brought to you by Mazars:
Acsion is an oddball that is still at a huge discount to NAV (JSE: ACS)
I’m not sure the market knows what to do with this one
Acsion is a property development firm rather than a REIT. That’s fine in principle, as there are other such firms on the market. The problem, I think, is that the strategy is all over the show, as the company has various rental properties and even generates 10% of its revenue from the hospitality industry, actually operating hotels itself.
The market likes things that are easy to understand, especially among the more obscure names with little or no liquidity anyway.
Acsion’s revenue is up 20% and net asset value (NAV) per share is up 17% to R26.16. The interim dividend is 16.40 cents, down from 18 cents last year. The market couldn’t care less about the NAV, with the share price languishing at R5.56.
The problem is that the dividend yield and the NAV don’t really make sense next to each other, so the market is focusing on the cash flow from the assets rather than the paper value. If the NAV is a genuine reflection of what the assets are worth, this should be a slam-dunk take-private opportunity.
The percentage moves at Crookes are a bit daft (JSE: CKS)
Agriculture is many things, but steady and smooth isn’t one of them
Crookes Brothers has released results for the six months to September. Thanks to a previously released trading statement, we knew they would reflect a huge improvement. Revenue from continuing operations is up by 17% and operating profit after biological asset fair value movements has jumped by a ridiculous amount, from R8.8 million to R108 million!
Once finance costs and other things are taken into account, the swing is from a headline loss of R29 million to headline earnings of R49 million. Importantly, cash generated from operations came in at R112 million, a huge increase from R28.9 million previously.
Despite this, there’s no dividend for the interim period.
In case you’re wondering how the group makes money, sugar cane generated operating profit of R166.9 million, bananas came in at R7.6 million and macadamias registered a loss of R33.9 million. These numbers are all net of fair value movements in biological assets. In particular, world macadamia nut prices are severely depressed.
Adjusted earnings are a lot higher at Deneb (JSE: DNB)
And in this case, the adjustments are appropriate
I’m normally skeptical of adjusted HEPS. The concept of HEPS is already somewhat adjusted in nature, as there are rules about what can be excluded as once-offs or non-recurring items. Still, those rules don’t capture every possible reality. In this case, Deneb received a large insurance claim in the prior year that was included in HEPS, which is why HEPS as reported is down by 36%.
In reality, it’s up 69% if that amount is excluded from the base, driven by revenue up 9.4% and adjusted profit up by 30.4%. The net asset value per share is up by 3%. Notably, the operating profit growth was driven by very strong cost control and a decline in gross margin of only 10 basis points.
Like last year, there’s no interim dividend.
eMedia was resilient in this period (JSE: EMH)
There were many reasons why the numbers should be a lot worse
Load shedding. Inflation. Fuel prices. General pain in FMCG, which is where a lot of advertising revenue comes from. It’s been a perfect storm for many businesses, yet eMedia has managed to constrain the revenue decrease to just 0.8%. Clearly, all those years of showing Anaconda on e.tv built some resilience into the place.
Operating profit fell by 4.4% and HEPS is down by 8.4%. Again, it could’ve been so much worse. The dividend per share is down by 14.3%.
eMedia is the biggest broadcaster in South Africa, so it has considerable potential upside if things improve. I would argue that an environment where rates start to taper off would be supportive of growth here. Most media companies have been treading water in 2023 at best.
There have been numerous legal battles with the other broadcasters in South Africa as they all fight over sports rights in particular. This resulted in significant legal fees in this period.
The numbers in the Media Film Service business are quite frightening, where profit fell by R20.9 million as a direct result of the actor and writer strike in Hollywood. The company relies on international film productions. It seems like there’s a tentative agreement to end the strike.
Exxaro is navigating a tough climate (JSE: EXX)
Local infrastructure problems remain a challenge
Exxaro released a financial director’s pre-close message. Basically, that’s just a pre-close update for the year ending December 2023.
It won’t go down as the happiest of years, with the API4 coal export price having dropped quite spectacularly from $271 per tonne in FY22 to $122 in FY23. Those elevated coal prices are but a distant memory. Total coal production is flat, with sales volumes down 2%.
The group net cash balance is R13.5 billion and the company wants to retain R12 billion to R15 billion to fund the growth strategy. On that basis, I wouldn’t expect much of a dividend here.
In some regions, product originally destined for the export market was rerouted for domestic sales. This is why we see a growth rate of 19% in Mpumalanga domestic thermal coal sales. Transnet Freight Rail (TFR) remains an issue, although the company has put a number of initiatives in place to try mitigate this issue. Concerningly, Exxaro notes that attempts by the coal export industry to support TFR have not yielded an improvement in tonnage railed.
None of this is stopping Exxaro from investing further in its business, with capital expenditure up 57% year-on-year.
The company seems fairly upbeat on near-term prices, while acknowledging that coal demand is being dampened in the long term by Europe’s drive for decarbonisation. On exports, higher prices would support the economics of sending coal by trucks rather than train.
The Fairvest B dividend is lower this year (JSE: FTA | JSE: FTB)
But the 100% payout ratio has been maintained
Fairvest has an unusual dual-share class structure that was popular several years ago on the JSE. The A shares increase their dividend by the lesser of 5% of CPI inflation, with the B shares then picking up the variability in the rest of the earnings. In other words, the A shares give more certainty and the B shares are the crazy cousin at the Christmas party.
In the year ended September 2023, inflation was high and so the A shares increased the dividend by 5%. Given the broader operating challenges in the country, the B shares saw the dividend drop by 4.6%.
The group is selling non-core assets and is working towards being a retail-focused fund. Progress was made in this strategy in this financial year, with guidance for the B shares being modest growth in distributable income per share.
The A shares are trading on a yield of 9.2% and the B shares on a yield of 12.4%.
Grindrod Shipping’s final quarterly report is a large loss (JSE: GSH)
The company is changing to a semi-annual reporting cycle, like most local groups
When people talk about highly cyclical industries, shipping is often used as an example. If you read the latest report from Grindrod Shipping, it’s not hard to see why.
In the three months ended September, the company generated revenue of $112.5 million and a gross profit of $4.2 million. Adjusted EBITDA was $11.2 million, which tells you that ship sales also play a role on the income statement. Despite this, the attributable loss for the quarter was $8.5 million. This takes the year-to-date situation into a loss as well, with an attributable loss of $7.2 million for the nine months.
After a large capital distribution this year, no further cash distributions are envisaged for 2023. The company has also reduced debt by $36.1 million, in some cases achieved through sales of ships.
The good news heading into the fourth quarter is that the shipping rates agreed thus far are ahead of the year-to-date numbers and well ahead of the third quarter. Festive demand obviously plays a role in this. Still, a 10% drop in the share price after this announcement tells you that some are still being caught out by how cyclical this industry is.
Mothership HCI is, as usual, a mixed bag (JSE: HCI)
The most severe drop in earnings was in the coal business
Hosken Consolidated Investments (or HCI) sits at the top of a structure that includes various unlisted and listed businesses, including Deneb and eMedia that I’ve covered elsewhere today. Frontier Transport Holdings is also in there, having recently released results.
For the six months to September 2023, EBITDA increased by 18%. That sounds good, yet HEPS is down by 13% and there’s no dividend as the company needs to preserve cash for the oil and gas investments in Namibia.
If we dig deeper, we find that higher finance costs and equity-accounted losses were a major driver of the EBITDA increase not translating into a happy HEPS result. There were also substantial gains on investments that are excluded from headline earnings.
Here’s the segmental view, with the more important moves highlighted:
Note the huge difference between profit and headline earnings on the “other” line, which is where the group recognises gains on investments (which are reversed out for headline earnings) and funding costs (not reversed out).
With no dividend to shareholders because of the investment in oil and gas, all eyes will be on the performance of that investment.
At some point, PBT Group had to run out of puff (JSE: PBG)
The share price has corrected this year, with the five-year performance still ridiculously good
PBT Group is a good little business. It’s ultimately a technology and data consulting business, not hugely dissimilar to Accenture. Many of the clients are in the financial services sector. PBT Group sells time, but a quick look at Accenture will show you that selling time can be very lucrative.
After an almost perfect run of performance, eventually something had to go wrong. This is especially true in a country that is struggling for economic growth.
The group has released a trading statement for the six months to September. It includes a lot of financial information, so this is more like a mini-results release than a traditional trading statement.
Before we dig into them, it’s important to understand that PBT Group Australia was disposed of on 30 September 2023, so it comes through as a discontinued operation in these numbers. Focusing on continuing operations is a good idea.
On that basis, revenue is up by between 5.4% and 9.8%. EBITDA is only up by between 0.5% and 4.6%, so there’s clear margin pressure there. Although profit after tax looks better at growth of 7.7% to 12.1%, normalised HEPS is down by between -6.2% and -2.4%. HEPS as reported is down by between -20.2% and -17.0%, but there’s a significant distortion from the accounting treatment of B-BBEE shares.
The share price closed 10% lower at R7.11. The interim normalised HEPS range is 30.8 cents to 32.0 cents. By small cap standards, the multiple had moved too high here.
Despite an extra trading week, Pepkor’s dividend fell sharply (JSE: PPH)
Here is yet another example of why I’m bearish on South African retail shares
For the year ended September 2023, which has a 53rd week of trading in it, Pepkor’s revenue grew by 7.7%. That’s not enough, sadly. Operating profit fell by 8.1% and HEPS was down 8.2%. The dividend payout ratio moved lower as well, so the dividend per share is down 12.9%.
The drop is payout ratio is despite a 15.9% improvement in cash generated from operations. I guess when you’re staring deep into the abyss of South African consumer spending, conservatism around the balance sheet is advisable.
The highlight, unsurprisingly, is that performance in Avenida in Brazil is ahead of the original plan. Latin America is a vastly more appealing consumer opportunity than South Africa. I genuinely don’t know why more South African retailers aren’t looking for opportunities there.
Based on HEPS of 149.2 cents, Pepkor is trading on a P/E multiple of 12.4x. The dividend yield is only 2.6%.
Prosus – Naspers expect the eCommerce businesses to break-even in the second half of this year (JSE: PRX | JSE: NPN)
Of course, there’s no mention of return on capital yet
Prosus has released interim results for the six months to September. There’s more focus on talking about profitability than before, which can only be a good thing. Consolidated trading losses in the eCommerce business (all the frothy stuff they bought with Tencent dividends) came in at $36 million, which is a lot better than $220 million in the comparable period. The company has given a bold prediction that breakeven can be achieved in the second half of this financial year!
I must point out that on an economic interest basis, trading losses improved from $820 million to $249 million. There’s still a long way to go here for shareholders.
The reduced losses in that side of the business contributed to an increase of 85% in core headline earnings to $2 billion. On a per share basis, it helps that Prosus has repurchased 16% of its shares. Core HEPS is up 99% and HEPS as reported is up 27%, both in dollars.
At Naspers, core HEPS is up 546% and HEPS as reported is up 143%.
One of the headaches in the business at the moment is the Edtech business, where Stack Overflow certainly isn’t overflowing with profits. The other business there is called GoodHabitz. The jokes write themselves. The group has intervened in both businesses to improve profitability.
I always look for disclosure on Takealot as well. With Amazon about to enter the market, there’s yet another period of losses at Takealot. The loss is admittedly 85% lower as measured in dollars, which is great news, but it’s still a loss. Takealot group revenue grew 9% in ZAR, which isn’t exactly a high growth story. It shows you just how broken the broader general merchandise market really is.
FARFETCH is going as badly as I expected, with some relevance to Richemont (JSE: CFR)
We covered FARFETCH in Magic Markets Premium previously and concluded that the name was appropriate
I’m not even slightly surprised that things aren’t going well at FARFETCH. The business model of selling luxury goods online continues to make no sense to me at all. This is the group that Richemont hopes to shift YOOX NET-A-PORTER to, as Richemont has perhaps also realised that the online side is actually rather difficult.
After a disastrous US listing, there are rumours of FARFETCH being taken private. Richemont has confirmed to the market that it has no plans to lend or invest into FARFETCH. The company has no financial obligations towards FARFETCH either. The deal for YOOX NET-A-PORTER is also still subject to conditions and Richemont is reviewing them carefully.
I maintain my view that FARFETCH is a mess.
PGM operations in the US aren’t immune from job cuts either (JSE: SSW)
Sibanye-Stillwater is restructuring operations on that side of the pond as well
Due to the ongoing state of the PGM market, Sibanye-Stillwater is having to restructure operations to reduce costs. The US operations are also impacted by this, with the company announcing that 100 employees (mainly at the Stillwater Mine) will be affected. A further 187 contract workers will also be impacted.
This restructuring should not significantly impact production, but will of course reduce costs. Simply, PGM prices aren’t playing out the way Sibanye hoped they would.
Purple Group will report a full-year loss (JSE: PPE)
This isn’t surprising in this economic climate and the loss is smaller than I think many expected
Building in public is hard. Most startups are built in private, so that the extreme volatility is known only to a few. EasyEquities is very much a startup in the true sense of the world, only now expanding into its second market in the form of the Philippines. The product range is still being fully developed even in the South African market.
I’ll say it again: this is a startup. This means that expecting a smooth ride at Purple Group is like expecting to have fun at the dentist.
For the year ended August 2023, the headline loss per share is between -1.94 cents and -2.15 cents. The comparable period saw HEPS of 1.12 cents. In a market where interest rates and inflationary pressures have hammered South Africans and their ability to invest in the market, I’m not surprised by this downturn at all. In fact, I think this loss is quite modest vs. what might have been.
The two things to watch here are (1) performance as interest rates ease and (2) how successfully they achieve product-market fit in the Philippines.
If you can’t handle volatility, you shouldn’t be anywhere near this thing as an investor. And if you had listened to experienced voices during the pandemic instead of the army of overnight influencers on Twitter, you would’ve known that sooner. Perhaps lessons have been learnt by retail investors as they’ve journeyed from over R3.40 per share down to the current level of 62 cents.
Transaction Capital will keep SA Taxi in its entirety (JSE: TCP)
The net asset value range is R11.30 to R12.07, so the share price is still at a significant discount
I was one of the investors who was severely caught out by the capitulation in the Transaction Capital share price. Now at R6.98, it’s at least shown some signs of life recently. It still has a very long way to go and I don’t think it will ever return to the levels seen previously.
In a trading statement for the full year ended September 2023, the headline loss from continuing operations is between -R784 million and -R703 million. In the previous year, headline earnings came in at R1.6 billion. As swings go, that’s a violent one.
The group tries to make shareholders feel better by reporting a “core earnings” range of R220 million to R282 million, which is between 77% and 82% lower than last year.
The more important news is that there isn’t much difference between continuing operations and total operations, as Transaction Capital has decided to keep SA Taxi’s auto refurbishment and repair facilities. There’s a new strategy focusing on pre-owned taxis at lower volume, as affordability for new taxis is a serious problem in the current economy. This means that we are heading back to having older taxis on the road in general, yet another symptom of this country’s economic policies.
The ongoing support of debt funders is critical to the viability of SA Taxi. Importantly, Transaction Capital hasn’t put in any additional equity funding since March 2023.
Looking at the other businesses, WeBuyCars actually did better than expected in the latest quarter, with previous guidance being that full year earnings would be down by around 20%. No updated guidance is given. Debt collection business Nutun is performing in line with previous guidance.
Results will be released on 5th December.
Vukile gives hope for the property sector (JSE: VKE)
Key metrics are looking much stronger
Vukile Property Fund is proof that not all property funds are created equal. Where some are struggling at the moment, others are doing really nicely.
In the six months to September, Vukile’s South African portfolio has grown like-for-like annualised net operating income by 5.1%. Vacancies are at 2.0% and reversions turned positive (+2.4% vs. -2.4%, a big swing). Even valuations are 3.9% higher on a like-for-like basis.
The Spanish portfolio showed normalised net operating income growth of 13% and vacancies of just 1%. Reversions are positive.
There is no debt maturing in FY24, so there’s no immediate refinancing risk. The loan-to-value of 42.9% is perhaps slightly high, but more than manageable. Thanks to the strong underlying performance, the interim dividend is 10% higher and guidance for the full year has been upgraded to reflect expected growth in the dividend per share of 8% to 10%.
The net asset value per share is R21.16 and the share price is R13.48. This is certainly one of the better local REITs.
Little Bites:
Director dealings:
There’s some strong buying in Sibanye-Stillwater (JSE: SSW) shares by very high ranking executives including Neal Froneman. The total purchases are worth around R18.5 million, so that’s material.
An associate of a director of Afrimat (JSE: AFT) has sold shares worth R12 million.
A director of STADIO (JSE: SDO) sold shares worth R1.1 million.
A non-executive director of Richemont (JSE: CFR) has bought A share warrants with a value of R86k.
Des de Beer has awoken from his slumber and is off to a modest start, buying just R12.7k worth of shares in Lighthouse Properties (JSE: LTE).
Delta Property (JSE: DLT) is fighting inch by inch, with the latest news being the sale of the Smartxchange property in KZN for R46 million. A previous attempt to sell the property failed after the buyer couldn’t meet the required conditions. The proceeds will be used to reduce debt and the loan-to-value is expected to fall by 20 basis points to 59.8%. Vacancy levels will reduce by 60 basis points to 33.9%. The valuation of the property as at 28 February 2023 was R50 million, so the sale is below that value.
Mantengu Mining (JSE: MTU) only commenced its Langpan operations midway through this interim period. Chrome production continues to ramp up monthly and the new processing plant is scheduled to be commissioned in the first quarter of calendar year 2024. Shareholders will be looking for the income statement to turn green, as the loss for the six months to August is R16 million.
Copper 360 (JSE: CPR) announced the acquisition of all the shares and claims in Nama Copper for R200 million. This will take expected 2025 output to more than double the original estimates. The CEO of Copper 360 calls it a “game changer” for the company and it certainly seems that way. The deal includes an offtake agreement with the sellers of Nama Copper. The operations of Nama Copper are adjacent to Copper 360’s existing operations and are similar in many ways, although they are currently in care and maintenance state. Unlike most junior mining deals that require an issue of fresh equity, Copper 360 is looking to finance this from a combination of debt and royalty agreements.
Life Healthcare (JSE: LHC) released updated pro-forma accounts related to the potential disposal of Alliance Medical Group. These should be read in conjunction with the transaction circular. Assuming the deal was effective on 30 September 2023, then the group HEPS per share would be 3.9% higher and the NAV per share would be 0.1% lower.
If you would like to learn more about the AngloGold Ashanti (JSE: ANG) business and strategy, then you should refer to the latest investor update presentation by the company. It’s difficult to pick out highlights from it, as this really does cover all the strategic initiatives in detail. I suggest you read the full presentation at this link.
The chairman of Trellidor (JSE: TRL) has decided to move on after 16 years in the role. The ex-CEO of Holdsport (you might remember that company as it was listed several years ago), Kevin Hodgson, looks set to join the board.
Go Life International (JSE: GLI) released results for the six months to August 2023. Revenue is once again zero, with an operating loss of $62k. The company is changing its name to Numeral Limited, perhaps because some numerals will eventually be found on the revenue line?
Listen to the latest episode of Ghost Wrap here, brought to you by Mazars:
ArcelorMittal is the latest economic casualty (JSE: ACL)
Years of poor economic policies in South Africa are coming home to roost for workers
ArcelorMittal has given the market the unfortunate news that the broader long steel products operations are going to be put on care and maintenance. This is despite the best efforts of the company to try and save these jobs. Nothing could be done about low GDP growth in South Africa (steel consumption has dropped 20% in the past 7 years), high transport and energy costs and other policies that have made it more appealing to produce steel from scrap than from iron ore.
The company will commence s189 proceedings at various operations, impacting approximately 3,500 employees. Eventually, years of infrastructure decline and slow economic growth start to take their toll on jobs.
Double digit growth in trading density at Attacq’s malls (JSE: ATT)
The group is on track to deliver FY24 distributable income per share growth of 8% to 10%
Attacq is one of my favourite local property funds, as the group has fewer properties rather than broad exposure. I remain unconvinced that diversification is the right strategy in South Africa, as there are only pockets of growth in a sea of load shedding and other issues.
The pre-close update from Attacq has done nothing to change my mind here, with the company on track to deliver its FY24 distributable income per share guidance of growth of between 8% and 10%. The retail portfolio has delivered growth in 12-month average trading density of 10.6%, which is a measure of sales per square metre.
Attacq does have some diversification and that seems to be where the headaches are. There are no buyers for the assets in Ghana at the moment. The sale of Ikeja City Mall in Nigeria is subject to the closing of Actis’ fund raising, with scarcity of dollars in that country remaining a problem. And as for MAS, the share price is still well below June 2023 levels after the dividend was suspended in September 2023.
Importantly, gross interest-bearing borrowings are down from R8.4 billion to R6 billion in the past four months, with the weighted average cost of debt down from 10.3% to 9.9%.
The company’s closed period begins on 1 January 2024, ahead of the release of results for the six months ending December 2023.
Bidvest gets a smack back down to earth (JSE: BVT)
Although still up for the year, a big chunk of gains was given up on Tuesday
Bidvest was my pick in the Financial Mail Hot Stocks edition for 2023 in the industrials sector. It’s now only up 12.9% for the year, so I certainly haven’t embarrassed myself. Things were looking a whole lot better before the latest announcement, though:
At the AGM, the company gave an update on trading conditions during the four months to October 2023. This is what drove a 10% drop in the price in a single day. This period represents the first four months of the FY24 financial year. When the company uses words like “muted” and a slowdown that was “greater than anticipated”, then you know you’re in for a rough ride.
Admittedly off a high base, revenue growth was impacted by a dip in demand (including in durable consumer spending) and increasing pricing competitiveness. They do talk about pockets of growth (particularly travel and hospitality), but the overall message here is that gross margins couldn’t be protected here through cost management.
Concerningly, retention of contracts came at the expense of margin. Although Bidvest hopes to claw this back over time, pricing power is what I want to see here and that is now in doubt. Even B2B business models have to face the realities of this economy.
It’s interesting to note that renewable energy sales fell in this period as load shedding reduced over the four months. One area where government will definitely give a helping hand to Bidvest is in that part of the business.
The automotive business was “significantly weaker” as customers were “very price sensitive” – not a good read-through for any of the car dealership groups.
Of course, a group the size of Bidvest hasn’t been built by standing still. Acquisitions worth R3.5 billion have been concluded, with most having become effective in recent weeks. This includes various acquisitions (bolt-on and otherwise) both in South Africa and abroad. Oddly, Bidvest has also opened its first Mahindra dealer. I’m not so sure about that one, particularly in this environment, but they will know the numbers a lot better than I do.
Delta Property’s NAV per share falls 14% year-on-year (JSE: DLT)
At least the loan-to-value ratio has come down slightly
Delta Property Fund is hanging on for dear life, trying to sell properties to bring down an unsustainably high loan-to-value of 60%. It was 61.4% in February 2023, so there’s been some progress in the past six months.
Although the net asset value (NAV) per share is down 14% year-on-year, it’s actually up ever so slightly vs. February 2023, coming in at R3.70 vs. R3.60. That’s another signal that there might be some hope here.
Rental income is down 9.2% year-on-year but property operating expenses are down 8.4% and administrative expenses increased by just 1.8%. There’s a real effort here to improve things.
Nedbank is still willing to put new debt into the group, evidenced by the revolving credit facility of R37.5 million. As the old joke goes: a rolling loan gathers no loss.
This is still as speculative as can be, even at a share price of R0.27 which is miles below the NAV per share. There are at least some signs of stabilisation over the past six months.
Tragedy strikes Impala Platinum (JSE: IMP)
The “darkest day” in the history of Implats
Mining is dangerous for the workers in the mines. Far too regularly, there are SENS announcement that go out with stories of injuries and often fatalities in mining accidents. This is a problem across the sector, which is why mines place great emphasis on safety statistics.
Impala Platinum has suffered a tragedy that is easily the worst mining update anyone has seen in a long time, with 11 employees losing their lives in an accident at Impala Rustenburg’s 11 Shaft on Monday afternoon. A further 75 employees were injured.
The accident happened while employees were being hoisted to the surface at the end of their shift. The conveyance rapidly started descending and the rest is a very ugly story.
The share price dropped 8.6%, as the market is well aware that a loss of life of this magnitude is also going to be an operational nightmare for the company. Aside from the obvious human tragedy, this is exactly what the business didn’t need when PGM prices are under pressure and the industry is suffering job losses.
The CEO called this the darkest day in the history of Implats. I think we can all agree with that sentiment. It really is a terrible story.
Murder on the Nampak dancefloor (JSE: NPK)
As I once wrote – wait for the dust to settle after the rights issue before having a punt
There’s still plenty of uncertainty at Nampak. When the rights offer was announced, here’s what I wrote in Ghost Bites:
Now, they did raise the capital in the end, so the existential crisis is off the table for the time being at least. They raised at R175 and the price is now below R172, so my concern about the pain to be felt during and after the capital raise seems to have been valid.
The almost 4% drop on Tuesday was thanks to a horrible trading statement for the year ended September 2023, reflecting a spectacular headline loss per share of between R461 and R476 per share. I had to read it a few times to be sure. The loss per share (i.e. including impairments) is between R1,169 and R1,178 per share. I’m still questioning whether there’s a typo. Sadly, there isn’t.
The impairment losses are enormous, as are the forex losses and the net finance costs. When full results come out on 4 December, we can try make sense of it all.
RH Bophelo’s NAV dips, but investment income is much higher (JSE: RHB)
This healthcare investment company has just over R1 billion in assets
RH Bophelo has announced its results for the six months to August 2023. Although investment income jumped 229% to R56 million and total income after tax increased by a similarly silly percentage, the net asset value (NAV) per share fell by 2% year-on-year.
As an investment holding company, the NAV per share is what you want to see heading in the right direction. Having said that, with the NAV at R13.76 and the share price at R2.00, the discount is so astronomical that one wonders what the catalyst will be for improvement in the price.
Perhaps a dividend of 31 cents a share will help, payable in December.
In other news related to the company, Katekani Mhlaba is resigning as CFO, replaced by Aviwe Metu with effect from 1 December.
Stefanutti Stocks is still making losses from continuing operations (JSE: SSK)
The group is trying to extend its debt and going concern status remains in doubt
There’s a difference between a going concern and an ongoing concern. Stefanutti Stocks is arguably the former and certainly the latter, as liabilities exceed assets at this stage. The cash flow projections suggest that the group is commercially solvent, but there are many uncertainties.
For the six months to August, revenue from continuing operations grew by 16% and operating profit by 27%. Sadly, there is still a net loss of R5.7 million, which is at least a lot better than the loss of R33.5 million in the comparable period. The discontinued operations actually made a profit, so the loss from total operations is R2 million.
The headline loss per share is 22.41 cents. The current share price is R1.20.
As part of the restructuring plan, the group is negotiating with lenders to extend the duration of the loan to June 2025. This is because of various receipts that have been delayed for reasons beyond the group’s control. Priced at prime plus 3.6%, Stefanutti Stocks is basically like an overindebted consumer trying to crawl out of a dark hole filled with unsecured loans. The difference is that there are no credit protections for corporates that get themselves into trouble.
Vodacom is in the process of trying to acquire a 30% interest in Maziv, which is the entity that would house Vodacom’s fibre assets with Vumatel and Dark Fibre Africa. Remgro sits on the other side of this transaction through Community Investment Ventures Holdings.
The Competition Commission has been having none of it, having recommended to the Competition Tribunal that the deal be prohibited. That recommendation was made in August 2023. The wheels turn slowly in South Africa, with the Competition Tribunal scheduled to hear this matter in mid-2024. It will still take a while thereafter to obtain a ruling.
The parties have therefore extended the longstop date of the deal to 29 November 2024, by which time conditions precedent must have been fulfilled. Thank goodness we are in such a vibrant economy that we can afford for our regulators to take this much time.
Little Bites:
Director dealings:
An executive director of Richemont (JSE: CFR) has exercised warrants to buy B shares worth R24.3 million.
The CEO of Bytes Technology Group (JSE: BYI) has bought shares worth £300k (R7 million).
The CEO of Mr Price (JSE: MRP) seems to agree with my sentiments about the recent rally in the share price, selling every single one of the shares received under the latest award. The sale was worth R977k. I really don’t think you can get a stronger signal than that. The company secretary only sold the portion needed to settle taxes. I would follow the CEO’s lead on this one.
A director of AngloGold Ashanti (JSE: ANG) bought shares worth $52.4k (R975k).
A director of a major subsidiary of STADIO Holdings (JSE: SDO) has sold shares worth R335k.
enX Group (JSE: ENX) has renewed the cautionary announcement regarding the potential divestment of the interest in Eqstra Investment Holdings. The company has been trading under cautionary since June 2023. These negotiations take time and there’s still no guarantee of a deal being announced, hence the need for caution.
Clover Alloys has opted to invest further in Orion Minerals (JSE: ORN), which may go a little way towards calming down some nervous among investors. Clover Alloys will invest R5 million in the company via options with a strike price of 20 cents a share. The current share price is 18 cents a share, so that’s particularly interesting. Clover’s current shareholding is 9%. I did note that the resolution related to an approval to issue shares to Clover Alloys was withdrawn at the AGM. I haven’t dug into the structure in detail, but you should certainly go digging here if you’re an Orion shareholder.
There’s a rather interesting non-executive director appointment at Mr Price (JSE: MRP). Refilwe Nkabinde has been appointed to the Mr Price board, a role she will hold while still serving as Finance Director of Vodacom South Africa.
The CFO of Cashbuild (JSE: CSB) will be stepping down in June 2024 after serving for 13 years. At this stage, no replacement has been announced. They certainly have a while to find one, though!
Mazars has announced a landmark network with Forvis, creating a top 10 firm in the USA. The CEO of Mazars in South Africa, Anoop Ninan, joined me to unpack why this is important. Of course, I didn’t waste the opportunity to tap into his extensive business knowledge at the same time!
Topics discussed included:
An overview of the unique network with Forvis and why this is important in a professional services environment that is highly fragmented in the assurance and related services space.
How audit firms try to differentiate themselves in the market, specifically across technology, people and partner-led service.
The ownership structure of these audit firms and how that works in this network situation.
The impact of this network on existing and prospective South African clients.
The Mazars growth strategy in South Africa and the sectors that are seeing significant activity, with reference to the advisory teams in Mazars and the work that they do.
The public company vs. private company landscape in South Africa, particularly in the context of an ever-shrinking JSE.
An overview of the broader Mazars service offering, including data insights and related services.
The impact of greylisting on how we are perceived internationally and the level of foreign direct investment.
South Africa’s ongoing positioning as the gateway to Africa and where the “good news” stories are in our economy.
Listen to the show here:
For more information on the Forvis Mazars network, you can read this article.
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.
This year, Unlock the Stock is delivered to you in proud association with A2X, a stock exchange playing an integral part in the progression of the South African marketplace. To find out more, visit the A2X website.
In the 29th edition of Unlock the Stock, we welcomed TWK Investments back to the platform. The management team gave a presentation on the performance and strategy and took numerous questions from attendees.
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:
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.
This year, Unlock the Stock is delivered to you in proud association with A2X, a stock exchange playing an integral part in the progression of the South African marketplace. To find out more, visit the A2X website.
In the 28th edition of Unlock the Stock, we welcomed Karooooo to the platform for the first time. The management team gave a presentation on the performance and strategy and took numerous questions from attendees.
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:
The Satrix Balanced Index Fund (with assets under management of R9.5 billion) has just turned ten. Over this decade, the fund’s consistent performance demonstrates why rules-based or indexed balanced funds are dominating their category.
Kingsley Williams, Chief Investment Officer at Satrix*, attributes the fund’s consistent performance to a rigorous and systematic Strategic Asset Allocation process, which focuses on the medium to long term, while ignoring the noise in the short term.
“The proof of our pioneering approach is in the pudding. Since inception, the fund has consistently been in the top quartile of performers more than half the time on a rolling three-year basis, while beating the median active manager 91% of the time over the same period. On a rolling five-year basis, it has never underperformed the median active manager, lending credence to its long-term approach”.
Source: Satrix. Data: Morningstar. November 2013 – October 2023.
A Revolutionary Approach
In 2013, the Satrix Balanced Index Fund was one of the early adopters of an indexed or rules-based approach to constructing multi-asset funds locally.
Williams says, “In the multi-asset space, from an active management perspective, you can add value at building block level in terms of strategic asset allocation to different asset classes, including equities, bonds, commodities, etc., as well as timing your trades within each asset class. Active managers in this space can tactically change allocation both between and within asset classes – with varying degrees of success.”
Satrix chose to do neither. “Instead of actively managing each asset class, we track indices that provide investors with cost effective and representative performance of each asset class. By focussing on getting our building block balance right, we have succeeded in gaining a long-term edge. The self-enforced discipline of not tactically changing course in the short term keeps costs, both management and trading, lower while allowing our strategic positioning to pay off. We review our position every two years and only make changes if we deem it necessary. Research has shown that acting more often seldom adds value and definitely adds cost. We believe this approach puts the odds firmly in favour of investors to outperform their more active counterparts.”
Next, Williams shares their balanced index funds’ key differentiators:
1. The Evidence Is In The Returns: Williams says, “Despite the upside potential of tactical asset allocation, the difference between active managers’ and rules-based providers’ returns has been remarkably small. Most rules-based funds have consistently done very well, which raises the question of whether investors are being adequately compensated through more expensive offerings. In fact, often human intervention ends up destroying value rather than adding it – the global research on this is quite clear in that more than 90% of return and volatility variation comes down to setting strategic asset allocations. For this reason, we focus entirely on getting the strategic asset allocation right.”
2. The Fee Differential: Rules-based funds offer a lower pricing point, which compounds the value proposition of robust returns. Over the medium to longer term, active managers need to be correct quite often in their tactical decisions to justify a higher fee – which has proven exceedingly hard to do consistently, especially as markets are becoming more efficient and complex.
The Secret Sauce: The Differentiators That Set Satrix Apart:
The consistent performance of the Satrix Balanced Index Fund is tied to two critical differentiators:
1. Structural Premiums Captured
A key differentiator for the Satrix Balanced Index funds is that the local equity building blocks make use of Satrix’s multi-factor index portfolio, SmartCore™. Nico Katzke, Head of Portfolio Solutions at Satrix, says that multi-factor strategies offer exposure to risk premiums shown to pay off over the medium to longer term.
“SmartCore™ offers a refined core exposure to the local equity market. Global and local research suggests that certain company features, including measures of value and balance sheet quality, as well as positive price and earnings momentum, make them more likely to outperform at lower drawdowns. The strategy systematically captures these factor premiums while explicitly targeting risk, both on an absolute basis and relative to the local benchmark index. This aligns with our overall philosophy of exposing our clients’ assets to longer-term sources of return.”
2. Construction
The biennial research-intensive process that Satrix employs for its Strategic Asset Allocation review is its other key performance differentiator.
Williams adds, “Being part of the larger Sanlam Investment Group, we can access multiple perspectives to thoroughly review each of our considered asset classes’ expected returns over the medium to long term. That’s one key variable in the optimisation process; the other is cutting-edge optimisation techniques that enable us to understand the risk interplay between the asset classes.
“We do a significant amount of stress testing to arrive at the most efficient portfolio possible, under different assumptions and scenarios. The biennial review also allows us to update the balanced fund according to regulatory changes and newly accessible asset classes. For example, we recently included global listed infrastructure as this provides a source of differentiated equity returns in an otherwise US and technology-dominated global equity universe. Even with significantly reduced expected return forecasts, our optimisation approaches ‘love’ infrastructure because of how it behaves with other asset classes, and further diversifies the portfolio.”
Crucially, the process is systematic; so the asset allocation is not changed according to market swings, and is only reviewed once every two years. In this way, the fund is being actively managed, but not in a traditional, tactical sense.
A key consideration for Satrix is building solutions that are optimally diversified with sufficient upside potential.
Katzke adds, “true diversification is all about putting your eggs in uncorrelated baskets in the most efficient way possible. This involves prioritising risk source diversification so that the fortunes of our funds are not decided by singular events.”
The Market is Starting to Notice
While rules-based funds still account for a comparatively small proportion of assets within the balanced fund categories (according to Morningstar numbers, roughly 8% and 6% for high- and low-equity balanced fund strategies respectively), the market is starting to notice.
According to Williams, “we’ve seen up to half of all flows in the high equity balanced fund segment going to rules-based strategies in the last year. With a few of these index strategies now having reached ten-year milestones on the back of performances superior to most active managers, the case for indexation in balanced funds has never been stronger. We believe a disciplined, indexed approach puts the odds firmly in favour of clients with an eye to long-term wealth creation.”
*Satrix, a division of Sanlam Investment Management
CIS disclosure Satrix Investments (Pty) Ltd is an approved financial service provider in terms of the Financial Advisory and Intermediary Services Act, No 37 of 2002 (“FAIS”). The information above does not constitute financial advice in terms of FAIS. Consult your financial adviser before making an investment decision. While every effort has been made to ensure the reasonableness and accuracy of the information contained in this document (“the information”), the FSP, its shareholders, subsidiaries, clients, agents, officers and employees do not make any representations or warranties regarding the accuracy or suitability of the information and shall not be held responsible and disclaim all liability for any loss, liability and damage whatsoever suffered as a result of or which may be attributable, directly or indirectly, to any use of or reliance upon the information.
Satrix Managers (RF) (Pty) Ltd (Satrix) is a registered and approved Manager in Collective Investment Schemes in Securities. Collective investment schemes are generally medium- to long-term investments. With Unit Trusts and ETFs the investor essentially owns a “proportionate share” (in proportion to the participatory interest held in the fund) of the underlying investments held by the fund. With Unit Trusts, the investor holds participatory units issued by the fund while in the case of an ETF, the participatory interest, while issued by the fund, comprises a listed security traded on the stock exchange. ETFs are index tracking funds, registered as a Collective Investment and can be traded by any stockbroker on the stock exchange or via Investment Plans and online trading platforms. ETFs may incur additional costs due to being listed on the JSE. Past performance is not necessarily a guide to future performance and the value of investments / units may go up or down. A schedule of fees and charges, and maximum commissions are available on the Minimum Disclosure Document or upon request from the Manager. Collective investments are traded at ruling prices and can engage in borrowing and scrip lending. Should the respective portfolio engage in scrip lending, the utility percentage and related counterparties can be viewed on the ETF Minimum Disclosure Document.
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