Nigeria’s Emzor Pharmaceutical Industries has signed a finance deal with the European Investment Bank for €13,85 million, to support the local manufacture of Active Pharmaceutical Ingredients (API). By the first quarter of 2024 Emzor’s Sagamu factory is set to start production of up to 400 metric tonnes of APIs per year.
UM6P Ventures has invested in Moroccan fintech, PayLik. The value of the investment was not disclosed. The PayLik platform provides employees with the ability to access their earned wages immediately, rather than waiting for the traditional 30 day pay cycle. To date, the wellness platform has c.3,000 employees registered on its platform.
Raxio Data Centres has secured an additional US$46 million in equity funding from existing shareholders Roha and Meridiam. Raxio is a carrier-neutral Tier III data centre operator established in 2018. Its first facility was launched in Uganda and it now also operates in Angola, DRC, Ethiopia, Côte d’Ivoire, Mozambique and Tanzania.
The Agri-Business Capital Fund has invested €800,000 into Ugandan coffee trader, JKCC General Supplies. JKCC started operations in 2017, sourcing high-quality coffee beans directly from more than 3,700 smallholder farmers across Uganda. In 2020, the company secured its coffee export license and commenced coffee processing.
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More than just a bite at Bytes (JSE: BYI)
Juicy double digit growth is impressive – especially measured in hard currency
South African investors love getting exposure to locally listed groups with offshore earnings. I always caution against buying low-growth companies purely for their dividend, with some of the offshore options having that flavour. Bytes is different, with operations in the UK and Ireland that are growing quickly.
Bytes plays in major growth areas like software, security, AI and cloud services. Lucrative industries tend to attract competition, so fast growing revenue doesn’t necessarily translate into margins being maintained at a high level.
We can see this by comparing gross invoiced income (up 37.6%) to Bytes’ revenue growing by 16.3%. Gross profit is only up 15%. Gross profit as a percentage of gross invoiced income has fallen from 8.3% to 7.0% for the six months to August, which is a significant negative move driven by large contracts where pricing needs to be more aggressive.
Expenses are also under pressure, with adjusted operating profit up by 13.8%. This is lower than the gross profit growth. Margins are high (adjusted operating profit is 31% of revenue) but are trending in the wrong direction.
HEPS has increased by 17% and the interim dividend per share is up 12.5%. Remember, all these growth rates are based on GBP earnings, so that’s before the benefit of rand weakness for South African investors.
This is a really strong result overall, though investors will need to keep an eye on margins.
Pressure on costs makes DRDGOLD’s life difficult (JSE: DRD)
Charting EBITDA against the rand gold price is fascinating
DRDGOLD releases an operating update every quarter. It includes information on gold produced and sold, as well as the average gold price, operating costs and adjusted EBITDA.
In other words, everything you actually need to know is in here.
The important thing to remember about DRDGOLD is that this is a tailings business, so margins are tight as the gold is being reclaimed from mine dumps etc. rather than mined for the first time. This leads to a more erratic profit performance, dependent on not just the gold price but also the significant inflationary pressures in operating costs in South Africa.
This chart tells the story, thanks to the quarterly updates:
In the latest quarter, the average gold price received per kilogram is down 2% vs. the preceding quarter and cash operating costs per kilogram increased by 6%. This is why margins have gone backwards once again.
From a cash flow perspective, it helps the balance sheet that sustaining capex is 25% lower than the immediately preceding quarter and non-sustaining or growth capex is 34% lower.
Although performance has varied significantly this year within the sector, all of the gold players are in the green in 2023:
If you’ve ever wondered what large ships cost… (JSE: GSH)
…wonder no more
Grindrod Shipping, like all shipping groups, is always on the look-out for opportunities to buy and sell ships. This is a core part of managing the fleet.
The announcements dealing with such purchases and sales are always a fun read because they go into detail on what the ships cost. For example, the 2015-built ultramax bulk carrier IVS Bosch Hoek has been sold along with the 2016-built ultramax bulk carrier IVS Hayakita for $46.5 million. The net result of all this is that $10 million worth of debt has been repaid on the $114.1 million senior secured credit facility.
There are two other sales with expected delivery in December, being the IVS Merlion for $11.6 million and the IVS Raffles for $11.6 million. Both these numbers are before costs and the vessels don’t have any debt specifically attached to them. The underlying contracts must be interesting, as Grindrod Shipping makes it clear that delivery might not take place by December – or at all!
In a separate announcement, Grindrod Shipping pointed to disclosure by Taylor Maritime Investments (the London-listed company that owns 83.23% of Grindrod Shipping) about shipping rates. Across the Taylor and Grindrod Shipping fleets, the blended net time charter equivalent was $10,695 per day for the quarter ended September. 29% of remaining days have been contracted to March 31 2024 at a rate of $12,200 per day.
Total Grindrod Shipping debt reduced by $7.7 million to $168.9 million during the quarter ended September. Debt to gross assets is around 38.5%.
Life Healthcare’s normalised EBITDA inches forwards (JSE: LHC)
Alliance Medical Group is recognised as a discontinued operation
Life Healthcare has released an update for the year to September 2023. The important nuance here is that Alliance Medical Group is being disposed of by the group, so it’s been recognised as a discontinued operation.
This means that the focus should be on performance from continuing operations, as this is what shareholders will be left with. It’s not exactly a rocket of excitement, with revenue up by between 7% and 13% and normalised EBITDA only 1% to 6% higher.
Interestingly, the split of medical to surgical paid patient days is now very similar to 2019. COVID has thankfully nearly worked its way out the system entirely.
In case you weren’t sure whether Life Healthcare’s acquisition of Alliance Medical Group had been a success over the years, perhaps the impairment in this period of around R950 million will answer the question. The transaction costs are an astonishing R700 million. The only saving grace here is that a forex gain is likely to be recognised on the actual disposal, as the rand has obviously lost a lot of value since that asset was acquired at R17.78 to the pound.
The weak profit growth at EBITDA level coupled with increased finance costs means that earnings per share (which also includes the impairment) has fallen by 75% to 95%. The group also reports “normalised EPS from continuing operations” which miraculously grew by between 10% and 29%.
I’ll wait for the full results and that magical term “HEPS” before forming a final view. In general, I am bearish on hospital groups as eternally bad allocators of capital. Nothing I’ve seen in this trading statement makes me want to change that view.
More pain at Sibanye-Stillwater, this time in PGMs (JSE: SSW)
This is going from bad to worse
The sharp downturn in the PGM sector has been quite something to witness. Just yesterday, I published a chart showing Anglo American Platinum’s basket PGM price and how this has dropped over the past year. Now, Sibanye-Stillwater is entering into a Section 189 process regarding four shafts at the local PGM operations. A total of 4,085 employees and contractors could potentially be affected.
Two of the shafts are mature, with one having ceased production in 2022 and the other at the end of its operating life. The other two need to be restructured to achieve sustainable production.
Regarding the closed Simunye shaft at Kroondal, where production ended in 2022, employees not yet deployed to other sites will be consulted under the s189 process. The 4B shaft at Marikana was restructured during 2019 and then spent a few years using the last of the economically extractable reserves, with the closure of that shaft subject to consultations with labour representatives and non-unionised employees.
The Rowland shaft at Marikana is only running at 64% of planned production year-to-date. To be viable, management has proposed a reduction in employee numbers.
The Siphumelele shaft in Rustenburg experienced seismic activity in 2022 which restricted access to certain areas. The production forecast dropped as a result, necessitating a proposal to decrease the workforce.
This kind of thing is bad news for the country as a whole and has a significant impact on the families who depend on these mines. It’s never nice to read.
Super Group finds it easy to raise debt (JSE: SPG)
The latest debt raise was strongly oversubscribed
Whenever people talk about the JSE, they inevitably refer to the equity market. This is only one part of the overall picture, as the JSE also has a vibrant debt market that allows corporates to issue debt (or “issue paper” as it is commonly called in the industry) to banks, financial institutions and funds looking for corporate credit opportunities.
These are often structured as Domestic Medium-Term Note Programmes, or DMTNs. The framework is set up when the debt is issued and then more debt can be raised through the programme without much additional work.
Super Group’s DMTN programme goes back to April 2020. Under this programme, the company aimed to raise another R1 billion from the market recently. The auction was held the other day and it was way oversubscribed, with bids of R3.2 billion coming in.
The three- and five-year tranches were priced at 2 basis points and 6 basis points respectively below the pricing guidance. In simple terms, this means the debt is cheaper than Super Group anticipated, thanks to the level of demand.
When companies have a solid track record, they benefit from cheaper debt.
Little Bites:
Director dealings:
A director of a subsidiary of AVI (JSE: AVI) received R865k worth of shares and sold the whole lot. I usually ignore share-based awards as this isn’t a useful signal about the share price. But when everything is sold rather than just the taxable portion, that’s a genuine insider sale in my books.
A prescribed officer of ADvTECH (JSE: ADH) has sold shares worth R614k.
Steinhoff Investment Holdings (JSE: SHFF) – the preference share structure rather than the now worthless and delisted ordinary shares – has withdrawn the cautionary announcement about a potential deal.
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Important correction: last week, I noted that the odd-lot offer by Quilter (JSE: QLT) was an opportunity to potentially make some “beer money” on the arbitrage. As a reader thankfully reminded me, you actually needed to be on the share register months ago to qualify. In other words, this arbitrage is not available. The structure is very different to a standard odd-lot offer.My apologies for this oversight.This is also a good time to remind you that the ultimate responsibility for research and any decisions always rests with you. I do my very best to avoid any errors, but even ghosts are only human.
Copper up, diamonds down at Anglo American (JSE: AGL)
The company released its production report for the quarter ended September
It never really makes sense to me why a diversified company like Anglo American gives a view on total production vs. the prior period. The underlying commodities are so different that you have little choice but to dig into the details.
The good news story is firmly in copper, with production up 42% thanks to the contribution of Quellaveco. Things are less enjoyable in PGMs (down 2%), nickel (down 7%), and iron ore (down 4%). Manganese ore headed in the right direction, up 4%.
We then get to the major negatives. Steelmaking coal production fell 21% and diamonds dropped by 23%, with the latter due to planned reductions (particularly in South Africa) as Venetia transitions to underground operations.
Rather than hitting you with selected numbers in terms of commodity prices, I’ll give you the entire table so you can see just how many commodities have dropped in price:
In terms of production guidance, copper has been reduced for the full year. Guidance across other commodities has been retained.
Anglo American Platinum really is up against it (JSE: AMP)
Production is under pressure and the rand basket price of PGMs just keeps dropping
For the third quarter ending September 2023, total PGM production dropped by 2% at Anglo American Platinum. Refined PGM production fell 9%, thanks to the combined impact of a “multi-municipal water stoppage” in Rustenburg and lower metal in concentrate production.
PGM sales were up 2% as the company was able to rely on refined stock to prop up sales at a time when production went the wrong way.
Speaking of going the wrong way, here’s the PGM basket price for the past year or so:
Note that this chart is already in ZAR, so it would’ve looked worse in USD.
And of course, adding insult to injury, a drop in production tends to mean an increase in unit costs, especially during inflationary times. Despite the PGM production guidance for full year 2023 being unchanged, unit cost per PGM ounce is expected to be at the upper range of R16,800 to R17,800 per ounce produced.
It’s not hard to see why the share price is down 57% this year.
Earnings fall at Famous Brands, yet the dividend is higher (JSE: FBR)
I would prefer to see a reduction in debt rather than a higher dividend
As though we don’t already have enough problems in South Africa, Famous Brands notes that we had a poor potato harvest in the country this year. Look, I can put up with a lot of things in life and most of what this country throws at me, but I won’t cope with not having any chips.
For now at least, there are still chips. Revenue increased by 10% for Famous Brands in the six months to August, so I’m clearly not the only fan of chips in this world.
Unfortunately for Famous Brands shareholders, that’s where the good news stops. With pressure on food input costs, massively higher insurance premiums (thanks to levels of civil unrest in this country) and support to franchisees through load shedding, operating margin fell from 11% to 9.4% and group HEPS dropped by 7%.
The trend of consumers trading down in search of value continues, with the “Signature Brands” (the fancier restaurants) reporting evening trade that hasn’t recovered to pre-pandemic levels. Families still want to get out the house, but affordability remains a challenge.
I worry about the dividend going up by 6% at a time when HEPS has fallen by 7%. With R1.25 billion in debt on the balance sheet, I can’t help but wonder whether that cash would be better utilised in reducing debt.
Strategically, the company has noted Cote d’Ivoire, Egypt and the Democratic Republic of Congo as potential growth areas for Debonairs and Steers.
I continue to prefer Spur in this sector for its relative simplicity and quality of strategic execution.
Transnet continues to hurt Kumba (JSE: KIO)
This time, the port seems to be worse than the rail situation
You don’t have to read very far into a Kumba announcement to find the word “Transnet” – the Achilles’ heel of South African resources.
For the quarter ended September, Kumba’s production was 2% lower quarter-on-quarter. The good news is that it was 4% up year-on-year, thanks to improvements in rail performance and a reduction in cable theft.
Before you get too excited, equipment failures and adverse weather conditions at the Saldanha Bay Port impacted ship loading, with sales down by 12% year-on-year and 6% quarter-on-quarter. There’s never a dull moment with Transnet.
The silver lining is that levels of finished stock at Saldanha Bay Port improved, so hopefully this benefit will be felt in the next period. Full year sales guidance for 2023 has been retained.
In term of iron ore pricing, the year-to-date average FOB export iron price was $112/dmt, which is down from $117/dmt in the comparable nine-month period.
Oasis Crescent: having no debt works well in this environment (JSE: OAS)
Shariah compliant funds aren’t exposed to rising interest rates as debt is not permissible
At a time when most REITs are finding it difficult to grow distributable earnings because of the high cost of debt, Oasis Crescent is enjoying the combination of high inflation and zero debt on the balance sheet. This has driven the distribution higher by 12.7% for the six months to September.
In the announcement, the fund reminds the market that unit holders have enjoyed a return of 10.3% per annum since inception vs. SA inflation of 5.9% per annum.
Welcome, Primary Health Properties (JSE: PMP)
The secondary listing is complete and we also have a trading update
The thesis behind Primary Health Properties (PMP) is centred around a basic concept: dependable rental income in a real currency. It’s as simple as that. This isn’t terribly different to the logic that people use when investing in global dividend stalwart British American Tobacco.
I think we can all agree that a healthcare group sits at the other end of the spectrum to a tobacco company on the public benefit scale, no matter how many ESG consultants and colours of the rainbow British American Tobacco uses on its website. There’s an ESG tick-box exercise and then there’s common sense.
The good news is that PMP is managing to increase its rent in a time of inflation. That sounds incredibly obvious, but “negative reversions” have been a feature of South African REITs over the past year or two.
To give you an idea of the PMP strategy, a recent acquisition is a community care facility in Ireland, presumably to help them with the pain of another quarter final exit in a Rugby World Cup. This property is fully let to the public health service on a 25-year lease with five-yearly inflation indexed rent reviews.
Before you assume that nothing can possibly go wrong with this story, don’t forget that debt costs have been increasing sharply in developed markets. The loan to value ratio at 30 September 2023 was 45.8%, up from 45.6% just three months prior. 97% of the group’s debt is fixed or hedged at a weighted average cost of 3.3%. Debt is never fixed for an indefinite term, so any further research here should be around when the debt expires and what the likely refinance rate might be.
Let’s hope we actually see some liquidity in this thing on the local market. The very last thing that anyone wants to see is a dud listing with a disappointing outcome for this international company.
RMB Holdings receives the base loan repayment from Atterbury (JSE: RMH)
The issuance of shares to settle the rest of the loan is expected soon as well
Back in August, RMB Holdings announced to the market that Atterbury Property Holdings has entered into an agreement with the company regarding the repayment of the R487 million loan.
In accordance with that agreement, Atterbury has repaid the base loan (R162 million plus interest) in cash. The remaining debt (R325 million) is repayable through the issue of shares based on the underlying net asset value of Atterbury. That calculation is being finalised, with shares expected to be issued on 1 November 2023.
Santova reminds us that what goes up… (JSE: SNV)
…probably comes down in a cyclical industry, regardless of how good the strategy is
If you followed markets during the pandemic, you’ll remember that shipping costs went to extreme highs as supply chains suffered from delays at ports and ships that got mysteriously stuck in important canals. Santova points out that the Drewry World Container Index (a common indicator for shipping rates per container) dropped from a high of $9,700 in January 2022 to $1,400 in September 2023. Current rates are even lower than pre-pandemic levels.
Although you might be tempted to think that this means heightened demand for shipping due to it being cheaper, the problem is that the price is a function of demand rather than a driver of demand. In other words, the price has fallen so sharply because demand has fallen as well.
Despite a significant decrease in gross billings as shipping rates have fallen, Santova managed to increase its billings margin in the six months to August. This was enough to drive a 3.3% increase in revenue.
The problem is everything below the revenue line, as operating margin has deteriorated from 45.7% to 33.0%. Santova highlights that this is above the industry average, but the trend still hurts for investors.
This is why HEPS is down by 22.9%, with share buybacks softening the blow of the decrease in operating profit.
I’ve always had my worries about cash flow generation in this business model, so I must point out that cash generated from operations for this period was only R25.3 million vs. R119.5 million in the comparable period.
And in case you’re out there thinking that the global strategy of Santova is propping things up, you would be interested to know that the South African business is showing defensive characteristics and only the UK moved solidly in the right direction, with a major drop in profits in Asia Pacific and Europe. The group is early in its US journey, showing a modest loss there.
Overall, the share price is flat on a 12-month view. Here’s how severe the rollercoaster has been along the way:
Spear’s dividend is up thanks to a higher payout ratio (JSE: SEA)
Even the best local property funds are finding things difficult at the moment
Spear REIT is focused on the Western Cape. Unless you’ve been living under a rock, you’ll know that this is the province where exciting things are happening. Even against that backdrop though, it’s not easy to navigate this environment.
For the six months to August, distributable income per share has decreased by 1.19% to 40.77 cents per share. The distribution per share is up by 3.21% to 38.33 cents, which is a 94% payout ratio vs. 90% in the prior year. The reason that the distribution per share has grown is because the payout ratio has been increased.
If we look at key metrics, there are some good signs. Reversions on new leases were positive 3.57% and the value of the portfolio increased by 5.85%. It’s less encouraging that revenue fell 0.41% and operating expenses increased by 0.31%. The better news is that on a like-for-like basis, operating margin expanded.
Another source of pressure is debt on the balance sheet. The loan-to-value has increased from 36.30% to 39.58% over the past six months and interest cover has dropped to 2.36 times. Debt levels are fine overall, but the increase in leverage has put the brakes on earnings growth. With the average cost of funding up by 93 basis points and 67% of the debt being variable in nature, investors will watch this carefully.
As a final comment, international business process outsourcing firms are establishing a larger presence in Cape Town, as it is obviously a great city for attracting talent and the South African timezone and availability of local skills make us an appealing location for outsourcing. This is proving to be very helpful for office vacancies.
Little Bites:
Director dealings:
A director of FirstRand (JSE: FSR) purchased shares worth R2.73 million.
A director of NEPI Rockcastle (JSE: NRP) bought shares in the company worth R181k.
RECM & Calibre (JSE: RAC) released a trading statement for the six months ended September. The metric used is net asset value per share, which is expected to be between 30% and 32% lower. This is a range of R12.00 to R12.40 per share. The current share price is R9.50.
Liberty Two Degrees (JSE: L2D) has confirmed the clean-out dividend that will be paid to shareholders before the company is taken private, coming in at 8.42 cents per share.
Clientele Limited (JSE: CLI) has renewed the cautionary announcement relating to negotiations for a potential acquisition in the insurance sector. This has been going on for some time now, with shareholders none the wiser as to the potential transaction.
ISA Holdings (JSE: ISA) has tightened up the range for its earnings, releasing a further trading statement that reflects HEPS growth of between 18% and 38% for the six months ended August 2023.
Hyprop (JSE: HYP) wants to retain equity in every way possible, which is why the company makes use of dividend reinvestment programmes. To entice shareholders to reinvest dividends, the reinvestment price is at a discount to the market price. Given the deal to acquire Table Bay Mall, it’s especially important to Hyprop to retain R500 million in equity capital through this programme. The reinvestment price has been set at R24 per share, which is a discount of 12.3% to the clean price 15-day VWAP. The clean price takes into account that the current share price has an embedded cash dividend.
Sirius Real Estate (JSE: SRE) announced that Fitch has maintained its investment grade credit rating with a stable outlook. Notably, Fitch liked the way that Sirius has transferred some of its best practices from Germany to the UK.
Zeder (JSE: ZED) noted that the SARB approval for the special dividend of 10 cents per share hasn’t been received yet.
Salungano Group (JSE: SLG) released a very angry SENS announcement regarding inaccuracies in an IOL article. It’s a sensitive matter, as wholly-owned subsidiary Wescoal Mining is currently in a voluntary business rescue process. The article alleges that the group has been unable to pay its debts, which the company refutes.
Conduit Capital (JSE: CND) is still trying to sell CRIH and CLL, with the fulfilment date for conditions to be met postponed once again. This has been going on since June. The new date is 30 November.
Chrometco (JSE: CMO) is suspended from trading. During a suspension, the rules still apply though. This is why the company has renewed a cautionary announcement regarding circumstances relating to a material subsidiary. It’s hard to use caution when you can’t trade the shares!
In recent years, the global investment landscape has experienced an unprecedented surge in the popularity of Exchange-Traded Funds (ETFs). These financial instruments, once considered a niche product, have now become a dominant force in the investment world
In PwC’s recent report titled: ETFs 2026: The next big leap report, it was revealed that 58% of respondents expect global exchange-traded fund assets under management (AuM) to reach USD 18 trillion by 2026. An additional 84% expect online platforms to represent the primary source of future demand for ETFs.
The global ETF boom represents a fundamental shift in the way individuals and institutions approach investment strategies. ETFs have become the cool kid on the block, drawing in investors the world over with the allure of transparency, cost-efficiency, diversification, and tax benefits. As the ETF industry continues to innovate and expand, it is positioned to play an even more significant role in the future of investing.
Over the past few decades, traditional investing was synonymous with unit trusts and actively managed portfolios. However, the rise of ETFs has transformed the way individuals and institutions alike navigate their investment strategies. But what’s fueling this ETF revolution?
At the core of this transformation are several key factors that collectively explain the unprecedented global ETF boom.
Chief Investment Officer at Satrix* Kingsley Williams, offers compelling insights into the phenomenon.
Reason 1: Certainty in Investment Strategy
One of the primary driving forces behind the ETF boom is the desire for greater certainty in investment strategies. Traditional unit trusts often relied on discretionary management, which could introduce unpredictability into investors’ portfolios. In contrast, ETFs are rooted in rules-based or systematic strategies, typically linked to specific indices. This approach provides investors with unparalleled transparency and consistency, instilling confidence that a fund tracking an index will adhere steadfastly to its intended strategy.
Investors appreciate the assurance that an ETF’s rules-based approach offers. It ensures that the fund will unemotionally rebalance back to its stated objective, consistently delivering what’s on the label. This level of predictability is particularly appealing to investors who are designing or managing an overall solution to achieve a particular investment outcome.
Reason 2: Performance Benefits of Indexation
The second reason contributing to the ETF boom revolves around the performance benefits of indexation versus actively managed funds. The arithmetic of active management often leads to underperformance of a majority of active funds relative to an indexed alternative, due to various factors, including higher fees, market volatility, and human biases. In contrast, index-based strategies present a compelling proposition by delivering reliable returns over the medium to long term.
This is a critical advantage that ETFs offer. By tracking well-constructed indices, these funds bypass the pitfalls of active management and enable investors to enjoy the full benefits of market growth without the drag of excessive fees and potential underperformance.
Reason 3: Drive for Lower-Cost Strategies
The cost of investing is a paramount consideration for investors, both individual and institutional. Herein lies another driver of the ETF boom: the pursuit of lower-cost investment strategies. ETFs, with their cost-effective structure, have emerged as an attractive choice for investors looking to maximise their returns.
The magic of compounding, often referred to as the eighth wonder of the world, is amplified when investors minimise the tyranny of compounded costs over an extended period. ETFs facilitate this cost-efficiency, allowing investors to accumulate wealth with greater efficiency.
Reason 4: Protection from Transaction Costs
One of the distinctive design features of ETFs is their ability to protect existing investors from the costs associated with other investors entering or exiting the fund. This mechanism, akin to the user pay principle, ensures that those transacting in the fund bear the associated costs, shielding long-term investors from negative impacts.
This unique characteristic provides peace of mind to investors, knowing that the actions of others entering or exiting the fund won’t disrupt their performance. It aligns the interests of all investors within the ETF, making it an ideal choice for those seeking stability and predictability.
Reason 5: Increased Investment Strategy Choices
ETFs have democratised investing by offering an extensive range of investment strategy choices. This democratisation is achieved through the ease of launching ETFs and the protection against transaction costs. These factors enable asset managers to introduce diverse strategies to the market, providing investors with more options to construct their portfolios.
Investors now have greater freedom to tailor their investment strategies to their precise needs, whether they seek exposure to specific sectors, asset classes, or themes. This enhanced flexibility has made ETFs a preferred instrument for constructing diversified portfolios.
Reason 6: Access to Diverse Asset Classes
Another compelling aspect of ETFs is their ability to make various asset classes accessible through the stock exchange mechanism. While traditional exchanges primarily catered to equities, ETFs have expanded the horizon by offering exposure to bonds, money market instruments, currencies, commodities, and more.
The beauty of this approach is that investors can interact with these diverse asset classes as easily as they would with equities. This added convenience has revolutionised access to traditionally opaque markets, bringing transparency and liquidity to asset classes that are challenging to navigate directly, and are often inaccessible to direct retail investors.
Reason 7: Unlocking Tax Benefits
In specific markets, ETFs unlock tax benefits that further enhance the returns they deliver to investors. While the intricacies of tax considerations may vary by jurisdiction, understanding these nuances can be vital for investors, especially when accessing global investment strategies.
For example, some ETF structures may provide more tax-efficient ways to access certain markets or assets compared to traditional unit trusts. These tax advantages make ETFs an attractive choice for investors keen on optimising their investment outcomes.
Reason 8: Growth Potential in South Africa
While the ETF boom has swept across the globe, individual markets are at different stages of adoption. In South Africa, for instance, the take-up of index strategies and ETFs is still in its relative infancy. However, promising signs suggest a bright future for ETFs in the region.
Currently, South Africa lags behind more mature markets like Europe and the United States in terms of ETF adoption. There is an approximately 15% [1] take-up across local equity indexed strategies so there is still a lot of runway in our market in terms of adoption. Predictions indicate that global ETF assets under management will continue to experience robust growth, with South Africa poised to play a part in this expansion.
Reason 9: Unlocking Untapped Markets in Africa
The influence of South African ETFs has extended beyond its borders. These ETFs have been cross-listed in various other African nations, including Namibia, Botswana, Ghana, Mauritius, Kenya, and Nigeria.
Many of these markets are dominated by cash-type investment strategies or bonds due to high-interest rates. Furthermore, investors in these regions often struggle to access global investment strategies due to regulatory hurdles.
This cross-listing approach has enabled South African ETFs to contribute to the broader African investment landscape. ETFs are bridging this gap by providing a convenient and cost-effective way to facilitate access to a broader range of asset classes and investment strategies. This democratisation of investment opportunities empowers individuals and institutions across the continent to diversify their portfolios and seek returns beyond their domestic markets.
The Broader Context
The global ETF boom is not a solitary phenomenon but part of a broader shift in how individuals perceive and approach investing. Only a few years ago, there was skepticism about this investment option, especially in markets like South Africa, where the investment landscape appeared distinct and challenging. Concerns were raised about the country’s resource-heavy stock market and its concentration relative to global counterparts.
However, as time has passed, real-world data and tangible results have begun to reshape investor perceptions. The emergence of ETFs with proven track records has made a compelling case for these investment vehicles. The numbers speak for themselves, as clients have increasingly compared the returns generated by ETFs to those from other investment options.
Financial education has played a pivotal role in this transformation. As investors become more aware of the array of options available to them, platforms like SatrixNOW have made it easier for individuals to explore ETFs and embark on their investment journey with confidence.
[1] Source: Satrix & Morningstar across all (ASISA) SA Equity & Real Estate categories, 30 June 2023
*Satrix, a division of Sanlam Investment Management
CIS disclosure
Satrix Investments (Pty) Ltd is an approved FSP in term of the Financial Advisory and Intermediary Services Act (FAIS). The information does not constitute advice as contemplated in FAIS. Use or rely on this information at your own risk. Consult your Financial Adviser before making an investment decision.Satrix Managers is a registered Manager in terms of the Collective Investment Schemes Control Act, 2002.
While every effort has been made to ensure the reasonableness and accuracy of the information contained in this document (“the information”), the FSPs, their shareholders, subsidiaries, clients, agents, officers and employees do not make any representations or warranties regarding the accuracy or suitability of the information and shall not be held responsible and disclaims all liability for any loss, liability and damage whatsoever suffered as a result of or which may be attributable, directly or indirectly, to any use of or reliance upon the information.
Listen to the latest episode of Ghost Wrap here, brought to you by Mazars:
Datatec reports massive growth in earnings (JSE: DTC)
Networking and cyber security are solid underlying drivers of growth
Datatec has released its interim numbers for the six months to August and they tell quite a story, with revenue up 14.7% and EBITDA up 39.2%. Continuing HEPS grew by 80% – in US dollars! Earnings from continuing operations is the right metric because Analysys Mason was in the base period, so it distorts the growth if we include it in the base for the calculation. This business was disposed of in September 2022.
Datatec remains a very low margin business though, with EBITDA margin of just 2.9%. That’s at least better than 2.4% in the comparable period, with an uptick in gross margin (driven by forex movements) as the primary reason for the improved EBITDA performance.
Looking at divisional results, Westcon International is the largest contributor to group revenue at 67%. It grew revenue by 14.9% and gross profit by 33.4%, with gross margin up from 9.5% to 11.0%. That’s good news.
The next largest is Logicalis International at 23% of revenue, although this is a structurally more profitable business with a contribution of 38% of gross profit (vs. 49% at Westcon International). It grew revenue by 12.1% and EBITDA by 41%.
The smallest is Logicalis Latin America, contributing 10% of group revenue and growing by 20.2%. with EBITDA swinging from a $1 million loss to a $5.8 million profit, representing a margin of 2.2%.
Perhaps the only blemish is a 57.5% increase in net debt, which drove the group net interest charge up from $15.8 million to $25.1 million. For context, EBITDA was $80.6 million.
Europa Metals has submitted its mining licence application (JSE: EUZ)
The submission envisages a life of mine of 15 years
Without a doubt, the names of regulators in Spain seem to be much more exotic than in South Africa. The recipient of Europa Metals’ mining right application is the Junta of Castille and Leon, with all documentation covering the exploitation, restoration and environment impact now submitted.
The Toral project’s 18-year operations (including a life of mine of 15 years) will create over 360 direct employment opportunities and 1,400 indirect jobs.
This is a major milestone, with the share price closing 18% higher in appreciation.
The FARFETCH – YOOX Net-a-Porter deal gets the green light (JSE: CFR)
Richemont will receive shares in FARFETCH
Personally, I still believe that the FARFETCH business model lives up to the name. We covered the company in Magic Markets Premium and we didn’t like the story. It’s down over 61% this year.
Richemont isn’t quite sure what else to do with the YOOX Net-a-Porter (YNAP) business, so the attempt to make it work is based on selling a 47.5% to FARFETCH and being paid in shares in the company. In addition to this, Symphony Global (an investment vehicle of Mohammed Alabbar) will take a 3.2% in YNAP. Naturally, the idea here is that most Richemont Maisons make their products available on the FARFETCH marketplace.
This ideal was announced a while ago, with the latest news being that the European Commission has given regulatory approval to the transaction and related partnership.
Kibo Energy’s subsidiary has a new JV partner (JSE: KBO)
The joint venture deal in Mast Energy Developments has been going on for a while
After a rearrangement of the investor consortium, Proventure Group has signed a replacement first definitive and binding joint venture agreement with Mast Energy Holdings, a subsidiary of Kibo Energy. Proventure is a renewable energy investment group based in India.
Proventure is required to make an initial interim payment of £2 million. The long-stop date for completion of the joint venture agreement has been extended to 30 November 2023, with a balance of £3.9 million being payable. The parties will also look to execute a second joint venture.
Sasol’s energy business is improving, but chemicals are hurting (JSE: SOL)
The production and sales update for Q1’24 has been released
Sasol operates in a world that is filled with volatility and uncertainty. Product demand tends to be all over the place and inflationary pressure on costs is substantial. It’s not an easy business to run.
In a production and sales update for the first quarter, Sasol highlighted that the Energy business has seen improved performance year-on-year. Within that segment, the mining business improved productivity by 9% and the coal stockpile continues to be built, with own production supplemented by external coal purchasing. Export sales of coal were flat year-on-year, thanks to ongoing issues at Transnet Freight Rail. In the gas business, production is 11% higher than the prior year and natural gas and methane rich gas volumes increased by 4% and 7% respectively. Finally, the fuels business saw production at Secunda Operations increase by 7% and Natref’s run rate increase by the same percentage. Liquid fuel sales grew 6%.
The Chemicals business doesn’t have a positive story to tell, with external sales volume up by 5% but revenue down by a whopping 28% because the average sales basket price has dropped 31%. If we dig deeper, we find that Chemicals Africa saw revenue fall by 23% despite volumes up 7%, although Transnet remains a serious issue here. Chemicals America saw a 28% drop in revenue and a 16% increase in volumes. Chemicals Eurasia was hardest hit, with revenue down 33% and volumes down by 13%.
It’s a mixed bag overall, as is typical of such a volatile group.
Southern Palladium releases geotechnical study results (JSE: SDL)
You’ll be thrilled to learn that there are no chromite stringers in the hanging wall
I always enjoy the release of drilling results, as I get to read a long announcement without having the slightest clue what is actually going on. Geotechnical study results are clearly no different, as I learnt from Southern Palladium.
Aside from all the super technical terminology, there’s a note from management that the study at Bengwenyama has yielded promising results. The other good news is that the Department of Mineral Resources and Energy (DMRE) has confirmed the acceptance of the Mining Right application.
South32 reaffirms FY24 production guidance (JSE: S32)
Manganese has been a highlight this quarter
South32 has released a quarterly report for the three months to September, representing the first quarter of the FY24 year. Production guidance for the full year is unchanged across all operations, which is good news.
Manganese production increased by 4%, with a quarterly record at South African manganese and a solid performance in Australia as well. Alumina production increased by 3%, as did aluminium production. Copper production fell 16%, zinc production was down 6% and nickel fell 14%. Silver was up 23% and lead was up 16%. Finally, metallurgical coal fell by 18%.
Net debt increased significantly, up by $299 million to $782 million during the quarter. Lower commodity prices were a factor here, as was a temporary increase in working capital. Despite this, $22 million was invested in share buybacks, with the company now 95% through its repurchase programme.
In terms of major projects, South32 commenced federal permitting at the Hermosa project and remains on-track to complete the feasibility study for the Taylor zinc-lead-silver deposit in the second quarter.
Textainer attracts a substantial buyout offer (JSE: TEX)
The share price closed 41% higher in a major payday for shareholders
Textainer is a locally-listed group and is one of the world’s largest lessors of intermodal containers. It has attracted the affection and money of Stonepeak, an alternative investment firm specialising in infrastructure and real assets.
Textainer common shareholders will receive $50 per share in cash, representing a premium of 46% to the closing share price on 20th October. After 16 years of being publicly traded, the company is likely headed for the exit, as I can’t see shareholders turning this down.
Interestingly, the merger agreement including something called a “go-shop” period that lasts for 30 days, permitting Textainer and its financial advisor to actively solicit alternative acquisition proposals. It would be quite an outcome if a bidding war emerged, but I wouldn’t count on it.
The company expects to continue its quarterly dividend until the deal closes.
Little Bites:
Director dealings:
Des de Beer has bought yet more shares in Lighthouse Properties (JSE: LTE), this time worth R4.7 million.
An associate of a director of Standard Bank (JSE: SBK) has sold shares worth R2.8 million.
The group managing executive of Nedbank (JSE: NED) retail and business banking has sold shares worth R904k.
A director of a major subsidiary of Bell Equipment (JSE: BEL) has bought shares worth R53k.
This is going to sound like something you’ve already heard in Ghost Bites recently, but Gemfields (JSE: GML) has now completed its share buyback programme. The reason they gave an update just the other day is because they had gone through a threshold that triggers an announcement, whereas this announcement is because the full programme has been completed. In summary, the buyback programme of $10 million was completed at an average share price of R3.1739.
If you are interested in Hulamin (JSE: HLM), watch out for an investor presentation coming on 25 October. It should be available on the website.
The Magic Markets team is two years into the Magic Markets Premium journey, having recently released the 100th podcast and research report on that platform. The Finance Ghost and Mohammed Nalla also have nearly 150 free weekly Magic Markets shows under their belts.
In short: there’s been a lot going on.
To celebrate the 100-show milestone, I asked the hosts to each pick a handful of insights from the various research activities. Demonstrating the breadth of research coverage and variety of industries, part 1 of this series includes insights from Swatch, TripAdvisor and John Deere.
Swatch: life comes at you fast
In business as in life, disruption can come at you at any time and from any direction. The quartz crisis, which affected Switzerland’s watch industry in the 1970s and 1980s, is a prime example. Swiss watchmakers (who prided themselves on aeons of mechanical expertise and craftsmanship) were blindsided by the rise of quartz technology, which made watches more accurate and affordable.
Suddenly, you didn’t need something expensive just to tell the time.
For context, the Swiss watch industry captured a staggering 50% share of the global watch market before the 1970s. By the late 1970s, quartz timepieces had overtaken mechanical watches in the market, and the Swiss watch industry’s 1,600 watchmakers at the start of that decade had dwindled to just 600.
The lesson here is that even well-established industries and companies can face unexpected challenges. Investors should always be vigilant and open to the possibility of disruption. It doesn’t happen often, but when it does, it can reshape entire markets.
Lab-grown vs. mined diamonds, we are looking at you.
Tripadvisor: the power of Google as a gatekeeper
Google is the go-to interface between internet users and countless businesses worldwide. Although Microsoft is trying hard to make headway with Bing as an alternative, nobody “Bings it” just yet. They Google it.
They don’t “Tripadvisor it” either, unfortunately. Despite this company being a household name, the lesson is clear: if you need to keep paying Google to reach consumers, your business has a structural flaw.
Tripadvisor’s business has been significantly impacted by changes in Google’s search algorithms and advertising practices, underscoring the importance of diversifying customer acquisition channels and not relying too heavily on a single platform. This is especially true when that platform is also one of your biggest competitors!
To make it worse for Tripadvisor, the unit economics are also weak. The share price has lost more than two-thirds of its value over the past five years and there’s no indication of things improving.
John Deere: tractors, but with internet?
The digitisation of industrial companies is a trend that has been reshaping traditional manufacturing and services. Companies like John Deere have been transitioning towards offering “as-a-service” models, where they provide not just equipment but ongoing services and data-driven insights.
This is the classic “internet of things” trend – and in this case, the tractors are the things.
Investors should recognise that even in traditional industries – and is there an industrial industry more traditional than agriculture? – digital transformation is driving innovation and new revenue streams. Companies that adapt to these changes can remain competitive and capture new growth opportunities. Those that don’t will sadly fall behind the curve.
And if you need a good example of why John Deere likes the combination of hardware and service revenue, look no further than the house that Apple built!
Investing in global stocks requires careful research, regular monitoring and an ability to spot changing market dynamics. That’s a lot to try do on your own, which is why Magic Markets Premium brings you a weekly research report and podcast on global stocks. At justR99/month, it’s a bargain. To celebrate the 100th report, you can use the coupon MAGIC100EPS on checkout to pay R899/annum instead of the usual R999/annum. Be quick! This deal is only valid until the end of October.
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.
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 27th edition of Unlock the Stock, we welcomed Lesaka Technologies 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:
Listen to the latest episode of Ghost Wrap here, brought to you by Mazars:
Coronation loves making us go look for historical AUM (JSE: CML)
This really frustrates me
Every time that Coronation announces its assets under management (AUM) on SENS, the company neglects to include comparable levels. This is irritating and it makes me want to highlight the reason why that might be the case.
If you go digging on their website, there is a chart dealing with annual AUM going all the way back to 1993. I’m afraid that the last decade tells quite the story:
When AUM has essentially gone nowhere in 10 years and costs have been rising, it shouldn’t come as a shock to see a net income chart that looks like this:
I often hear the argument that Coronation is attractive as a dividend paying stock. Even if we ignore the recent tax problem, I’m afraid that this is a classic case of the dividend yield not even offsetting the share price decline, so the total return is practically non-existent.
The lesson here? Don’t invest in a stagnant business just because of the dividend. Different strokes for different folks I suppose, but I can’t get my head around taking equity risk on something that isn’t growing.
This historical performance is important context when looking at the results for the year ended September 2023. Although we only have a trading statement to work off at this stage, it’s detailed enough to get a good idea of what the performance looks like in this period.
The tax fight with SARS is heading to the Constitutional Court. It was worth 205 cents per share in this period, so this has been the driver of the drop in HEPS of between 164.8 cents and 201.4 cents. It’s also important to reference fund management earnings per share as a purer view on operational performance, with earnings down by between 212.8 cents and 251.5 cents per share. Through that lens, the tax issue is certainly the largest driver of the drop, but it’s not like the core business is going in the right direction either.
With South African investors under pressure from every angle, it’s hard to get excited about Coronation’s prospects.
Finbond is much closer to being profitable (JSE: FGL)
Core growth metrics are looking positive
Finbond has had a tough time, including in the US where regulatory changes in Illinois hurt the business. Things are looking considerably better for the six months ended August, although the group is still loss-making with a headline loss per share of -2.3 cents vs. a loss of -8.2 cents in the comparable period.
The value of loans advanced increased by 23.2% and total revenue was 14.3% higher. As encouraging as that is, the overhang of stimulus in the US is that US volumes are still only 75% of pre-COVID levels, as customer savings levels are 30% higher than pre-COVID.
One of the problems with higher growth is that the loans in the US are 18- to 24-month products, yet the expected credit loss must be recognised at the commencement of the loan. The interest is only earned over the period of the loan. This drives a substantial lag in profitability. Another issue for profitability is the fixed cost base, so scale is important and needs to improve.
It’s interesting to note that the average size of a retail deposit at Finbond Mutual Bank is over R356k, with a weighted average interest rate of 9.3% and weighted average deposit term of 27.9 months. The group has R583 million in retail deposits. This is still much smaller than the R2.4 billion in commercial paper in South Africa. The rest of the funding is in the US, worth R466 million. The balance sheet is built around a strategy of having long-term liabilities and short-term assets, which minimises liquidity risk.
And in case you’re wondering, the average consumer loan size in South Africa is just under R2k. The entire loan portfolio turns over approximately four times a year.
The net impairment is 21.7% of revenue.
Finbond is trading at 35 cents per share. It’s up around 30% in six months but has lost 90% of its value over five years. I must say, it’s looking kinda interesting as a more speculative play.
Gemfields gives a summary of its share buybacks (JSE: GML)
The company has repurchased 4.59% of its issued share capital since November 2022
Under JSE rules, a company must make an announcement once 3% of issued shares have been repurchased. Gemfields is operating under the general authority at the last AGM to repurchase shares and has reached 4.59% of the shares that were in issue at the date of that meeting.
This means that R176 million has been invested in share buybacks at an average price of R3.1751 per share. That’s practically the same as the current traded price.
Merafe reports on nine-month production figures (JSE: MRF)
There was a deliberate reduction in production over the winter months
Merafe has reported its attributable ferrochrome production from the Glencore Merafe Chrome Venture for the third quarter ended September. It came in at 40kt, way below the run-rate for the nine-month number of 225kt.
This is because of a pullback in production in response to market conditions, with only one smelter operating over the winter season when electricity was more expensive.
For the nine months, production is 21.4% lower year-on-year.
Reinet’s fund NAV dipped this quarter (JSE: RNI)
This is a precursor to the NAV of the listed company
The bulk of Reinet’s NAV is captured in Reinet Fund, which includes the investments in Pension Insurance Corporation, British American Tobacco and others. The group always releases the NAV of the fund before releasing the NAV of the group. The NAV itself is different at group level but the direction of travel is usually consistent.
As at 30 September, the NAV per share of Reinet Fund was €32.79. This has dipped by 0.6% in the past three months.
The cycle seems to be turning against Santova (JSE: SNV)
This had to happen eventually
Logistics group Santova has been a darling of the local small cap universe, with the share price up 133% over five years. If you bought in the depths of COVID, you’re up 277% over three years.
The group was a net beneficiary of supply chain pressures across the world, assisted by a solid expansion strategy. At some point though, the cyclical nature of logistics had to play a role.
In a trading statement dealing with the six months to August 2023, HEPS is down by between 20.9% and 25.9%. The actual guided range is 57.87 cents to 61.78 cents vs. 78.11 cents in the comparable period.
The share price closed 3% lower on the day of the announcement at R7.61.
Noel Doyle is on his way out at Tiger Brands (JSE: TBS)
It won’t do much for his self-esteem that the market rallied in response
Markets are cruel things. They well and truly don’t care about your feelings. Noel Doyle has “jointly agreed” to part ways with Tiger Brands, with the company saying that “new leadership was required to respond to the challenges currently facing the company” – in other words, he was asked to leave after over 20 years of service with the company. The market responded with the share price closing 11% higher.
If you ever want to know what the challenges are, just walk to the baked beans aisle at your local grocery store. There, you will see Koo beans priced at a premium to various other competitors because of the supposed strength of the brand. I am quite sure that consumers eating baked beans don’t really care about the strength of the brand at a time when prices have basically doubled over the past couple of years. Ditto for Albany Bread, which is more expensive than competitors.
Doyle’s replacement is Tjaart Kruger. He is no stranger to Tiger Brands, having worked in the group from 2001 to 2007. He then ran Premier Foods from 2011 to 2021. Kruger has signed a 26-month contract with Tiger Brands, which is a weirdly specific tenure. It also means that this a transitionary period in leadership, as the group will be looking for a CEO to take over from Kruger. Doyle will remain available to Tiger Brands until March 2024 to help with the handover.
In case you still don’t believe me about the baked beans, perhaps a trading statement for the year ended September 2023 will convince you. The performance at segmental level varies considerably (as one might expect), with HEPS from total operations expected to differ by between -5% and 2% vs. the comparable period. Notably, the Groceries and Snacks & Treats businesses are experiencing overall volume declines.
KOO sometimes isn’t the best you can do.
Little Bites:
Director dealings:
The CEO of Equites (JSE: EQU) has sold shares worth R26 million. This represents around 18% of his stake in the company. The share price is down 28% this year and this sale won’t do the trajectory any favours.
A director of a major subsidiary of Woolworths (JSE: WHL) sold shares worth R5.1 million. The Woolworths share price is down 16% in 90 days, so I wouldn’t ignore that.
A prescribed officer at ADvTECH (JSE: ADH) has sold shares worth R2.6 million.
Des de Beer has bought another R1.75 million worth of shares in Lighthouse Properties (JSE: LTE)
There have been various recent off-market purchases of shares in DRA Global (JSE: DRA) by Apex Partners, an associate of director Charles Pettit.
As part of the buyout and delisting of Transcend Residential Property Fund (JSE: TPF) by Emira Property Fund (JSE: EMI), there is a “clean-out dividend” to be paid to Transcend shareholders to cover the period from 1 April 2023 until the date of the implementation of the deal. The board has determined that this dividend is 29.44 cents per share.
CORRECTION: The Quilter (JSE: QLT) odd-lot offer doesn’t follow the usual approach at all. It applies to 200 shares rather than 100, but more importantly you needed to be on the register on 28 April to qualify.
The weirdness around aReit Prop (JSE: APO) never seems to end. In an announcement dealing with a special resolution for financial assistance, I learnt that aReit Prop can’t collect the rentals directly on a property because it hasn’t been able to finalise a VAT registration since March 2022. The company hopes to finalise this in October 2023. Even more hilariously, the website doesn’t work (or at least not when I tried to access it).
Listen to the latest episode of Ghost Wrap here, brought to you by Mazars:
The market expected more from Mondi (JSE: MNP)
The share price didn’t enjoy the quarterly earnings release
Mondi closed 6.8% lower after providing a quarterly trading update dealing with the three months ended September. Market demand was “soft” and selling prices came under pressure, a combination that investors never want to see.
To add to this pressure on EBITDA, there was a far lower forestry fair value gain in this quarter. The fair value gains sit in EBITDA, which is part of why the earnings can be this volatile:
It’s difficult for cyclical companies to make long-term decisions, but Mondi still believes in the structural growth in the packaging markets that it serves. For this reason, the €1.2 billion expansionary projects pipeline remains in place and is running within budget.
Sasol asks shareholders to give it flexibility on the convertible bonds (JSE: SOL)
If shareholders give the green light, the convertible bonds can be equity settled
In November 2022, Sasol announced that $750 million had been raised through the issuance of convertible bonds. The conversion is currently cash-settled, with Sasol wanting shareholders to give the company the flexibility to settle any future conversion by issuing ordinary shares instead.
The problem for Sasol is that if the only way to settle the conversion is through cash rather than shares, then the company constantly has this potential conversion hanging over its head. If shares can be issued instead, it frees up cash for other corporate purposes.
Of course, for shareholders, the prospect of equity settlement is dilutionary and technically puts an overhang on the share price instead of on the management team.
For this reason, Sasol is asking shareholders extra nicely to say yes. In case you’re interested, the circular can be found here.
Vunani’s earnings drop but the divi is steady (JSE: VUN)
If you read carefully, the insurance business is carrying the team
Vunani reported a 4% increase in revenue and premiums and a 7% drop in profit after tax for the six months ended August. There are many things that happen between those two numbers, including fair value movements.
We therefore need to dig deeper into the business. The largest revenue contributor is the insurance business, responsible for 36.5% of group revenue. It’s also the major growth driver in the group, up roughly 25%.
The next largest segment is asset administration, with revenue up by 6.8%. This segment contributes over 30% of group revenue.
Fund management is up next, with this segment heading in the wrong direction. It’s down roughly 12.5% in revenue. Because of the operating leverage in that business, profit is down 47%.
Within the smaller investment banking business, advisory revenue fell to R14.8 million but at least that business turned positive at profit level, so costs were presumably cut. No such luck in institutional securities broking, with that race-to-the-bottom business reporting yet another loss. Revenue was flat and the loss has worsened from R940k to R3.4 million.
Overall, HEPS fell by 10.8% to 18.2 cents and the dividend was steady at 9 cents per share.
Little Bites:
Director dealings:
You’ll never believe it, but Des de Beer bought R352k worth of shares in Lighthouse Properties (JSE: LTE)
I’ve seen some views in the market that the extensive sales of shares by the CEO of Truworths (JSE: TRU), Michael Mark, is a strong sell signal. These sales related to share options issued many years ago. Given that information and Michael Mark’s age, I’m still not sure these are such a strong signal, especially as many shares are also being retained when the options are being exercised.
The CFO of Mpact (JSE: MPT) and his associates have sold shares in the company worth R67k.
Primeserv (JSE: PMV) announced the acquisition of a business back in May 2023 for almost R11 million. The resolutive conditions have now been fulfilled. A resolutive condition is different to a suspensive condition in that the deal actually closes when there are resolutive conditions, with an attempt made to subsequently unscramble the egg if a resolutive condition isn’t met. It’s rare to see this in practice because it can be a practical nightmare.
BHP along with its joint venture partner Mitsubishi Development, are to disinvest from the Australian Blackwater and Daunia mines. Two wholly owned subsidiaries of Whitehaven Coal will acquire the mines for a cash consideration of up to US$4,1 billion. Completion of the transaction is expected to occur in the June 2024 quarter.
Omnia has taken a minority stake in Swedish-based Hypex Bio Explosive Technology. Omnia sees the deal as a strategic partnership; one that will enhance the ongoing development and commercial rollout of Hypex’s HP emulsion technology in key markets and will provide BME, Omnia’s provider of blasting solutions subsidiary, with access to state-of-the-art technology. Financial details were undisclosed.
Hyprop Investments has concluded a sale agreement to acquire Table Bay Mall for R1,6 billion. The company notes that an additional R23,3 million will be paid in respect of the cost of the solar panels currently being installed at the mall – a sign of our times. The addition of this asset to its portfolio is consistent with the company’s strategy to increase its exposure to the Western Cape. The acquisition is classified as a category 2 transaction, so shareholder approval is not required.
In another property transaction announced this week Accelerate Property Fund has disposed of two office properties in the Eastgate area – Pri-movie Park situated at 185 Katherine Street and 1 Charles Crescent. The purchaser, Micawber 832, will pay a combined R117 million. Accelerate shareholders are not required to approve this transaction.
Concert parties African Equity Empowerment Investments (AEEI) and Sekunjalo Investment Holdings (SIH) have made an offer to AEEI shareholders to acquire their shares for R1.15 per share. The offer price is a 28% premium on the share price of R0.90 prior to the announcement. The offer is for a maximum 144,336,812 shares (SIH holds a 70.6% stake in AEEI which is excluded from the offer) for a maximum offer consideration of c.R166 million. At the time of the announcement 47.27% of shares held by eligible shareholders had undertaken to vote in favour of the delisting resolution.
Following a strategic review of its businesses against a backdrop of the current economic, political and competitive landscape, Sasfin has announced the disposal of its Capital Equipment Finance and Commercial Property Finance businesses to African Bank for an aggregate consideration of c. R3,26 billion. Post the transaction, Sasfin will retain its Wealth, Rental Finance and focused Banking businesses which it aims to strengthen and scale.
Boland Rugby has announced a transformative equity partnership with Stellenbosch Academy of Sport, a subsidiary of Remgro, and a consortium comprising companies controlled by the Motsepe family. Remgro and African Rainbow Capital Investments will each own a 37% of the Boland Rugby Union – with the union retaining the remaining 26%.
Deneb Investments via its subsidiary Sargas, has disposed of properties considered non-core to its growth strategy. The properties, situated at 40 Leicester Road, Mobeni West in Durban, are to be sold to Groforce Investments for a cash consideration of R65 million. The disposal consideration will be used to settle outstanding debt.
Unlisted Companies
The Hollard Group, a mass-market life insurance company, has announced a strategic investment in SA-based insurtech, Simply Financial Services, a registered FSP and insurance software developer. The undisclosed investment by Hollard will enable the insurance disruptor to scale the business and target a larger pool of individuals and businesses.
Licensed open-access fibre infrastructure provider, Frogfoot Networks, has acquired Garden Route Networks and Route Networks as it expands its connectivity capabilities in parts of South Africa’s coastal region. Financial details were not disclosed.
Global financial services provider Apex Group has announced the sale by its BEE partner Ditikeni Trust of a minority stake in the South African subsidiary Apex Fund Services to a B-BBEE consortium. The stake has been sold to a consortium led by Ntiso Investment Holdings and Akhona Group. Financial details were undisclosed. In addition, Apex announced the successful close of the acquisition of Boutique Collective Investments (BCI) and Boutique Investment Partners (BIP). BCI is a collective investments scheme manager with a core business focus on third-party branded portfolios while BIP is an independent investment management and consulting firm providing multi-manager and consulting services to South African independent financial advisers and their retail and institutional clients.
Belgium headquartered P95, a provider of clinical and observational services to vaccine developers, is to merge with local clinical research organisation OnQ Research. Post the transaction P95-OnQ will have a physical presence in 30 countries with offices in Europe, Latin America, Asia and Africa with services covering both regulatory-grade real-world evidence and full-service interventional clinical trial research.
South African owner and operator of serviced last-mile logistic parks, Inospace, has acquired a landmark A-grade industrial facility in Paarden Eiland from the liquidators of shipbuilder Nautic Africa. The vacant property was purchased at a rate of R8,900/m² and has a gross lettable area of 8,400m² under a 22-metre-high roof.
Knife Capital, the Cape-based venture capital investment manager, has led a Series A funding round by Outsized. The talent-on-demand platform enables large enterprise clients and consulting firms in Asia-Pacific, Africa and the Middle East to implement flexible workforce models.
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