Adenia Partners has announced the acquisition of 12 Air Liquide subsidiaries in West and Central Africa. The entities and employees in Benin, Burkina Faso, Cameroon, Congo, Ivory Coast, Gabon, Ghana, Madagascar, Mali, Democratic Republic of Congo, Senegal and Togo will form a new, independent, pan-African industrial gases group. Financial terms were not disclosed.
Kenyan insurtech mTek has raised $1,25 million. The funding was secured from Verod-Kepple Africa Ventures and Founders Factory Africa and will allow the company to expand in both Kenya and the East African insurance market.
Mobility fintech Moove, has raised US$100 million in a Series B funding round led by Uber with participation from sovereign wealth fund Mubadala and several other investors. Mubadala led the $550 million debt and equity round announced in August last year. Moove plans to utilise the funds to expand its existing markets from 13 to 16. This latest funding values the fintech at $750 million.
Savannah Energy has consolidated it position in the Stubb Creek oil and gas field. The company has signed share purchase agreements with Sinopec International Petroleum Exploration and Production Services and Jagal Ventures to acquire 100% of Sinopec International Petroleum Exploration and Production Company Nigeria, which has a 49% non-operated interest in Stubb Creek, located in Akwa Ibom State. Universal Energy Resources, a Savannah Energy affiliate, is the 51% owner and operator.
Nigerian fintech Zone (previously Appzone) has raised $8,5 million in seed funding. The round was led by Flourish Ventures and TLcom Capital. The funding will be used to scale the fintech’s decentralised payment infrastructure.
Namibia Critical Metals has sold four non-material gold properties in Namibia to Sylla Gold Corp. Sylla will acquire the company’s 95% stake in its Namibian subsidiaries that own the rights, title and interest to the Grootfontein, Erongo, Otjiwarongo and Kaoko licences plus certain associated assets, Financial terms include 3 million Stylla common shares and a cash payment of US$100,000.
Acasia Ventures has led a six-figure bridge round in Egyptian healthtech, Pharmacy Marts. The Cairo-based digital marketplace aims to digitise the pharmaceutical industry’s supply chain to improve patient access to medication. The company currently covers 12,000 pharmacies across Egypt with over 200 suppliers on its platform.
Kenya’s NCBAGroup has signed a $50 million facility with Proparco to help facilitate green financing and Women Economic Empowerment in Kenya. The funding will help NCBA deliver on its “Change the Story” sustainability agenda.
The digital pictogram we know as the “emoji” was invented by Japanese artist, Shigetaka Kurita nearly 25 years ago. Its creation and subsequent acceptance by Unicode caused it to gain popularity and develop into a modern-day form of communication. The “face with tears of joy” emoji even won the Oxford Dictionaries’ 2015 Word of the Year Award. Having already crossed the boundary of what we understand language to be, it has now collided with the law of contract.
Canadian case law
In June 2023, the Canadian King’s Bench for Saskatchewan considered whether a valid contract was entered into when the “thumbs up” emoji was used. In other words, was there a meeting of the minds and a certainty of terms. Following various correspondence, in March 2021, a representative of South West Terminal Ltd (the buyer) sent a text message to the owner and operator of Achter Land & Cattle Ltd (the seller) in respect of its purchase of flax. The buyer drafted a contract, applied his ink signature to it, took a photo of the contract with his mobile phone and asked the seller to “please confirm [the] flax contract”, to which the seller replied with a “thumbs up” emoji. A dispute arose when the flax was not delivered in November 2021.
The court, after considering all the facts, took the view that there was a pattern in how the buyer and the seller entered into prior agreements and, therefore, was satisfied on a balance of probabilities that the seller did not just acknowledge receipt of the contract, but approved of it, like he had done on numerous occasions – except that, this time, he used an emoji to do so. The emoji that he used is also known to signify acceptance and approval. Further, the court found that a reasonable bystander, knowing all of the background, would have come to the objective understanding that there was consensus ad idem, a meeting of the minds. In respect of the requirement of there being a certainty of terms, the court found that, given the buyer and seller’s long history of doing business together, there was no uncertainty in respect of the terms of the agreement.
South African law
Considering the Canadian judgment above, one wonders whether this may be applied in South Africa. Section 13 of the Electronic Communications and Transactions Act 25 of 2002 (ECTA) provides for three scenarios:
If a signature is required by law and the law does not specify the type of signature, the requirement is only met if, in relation to a data message, an advanced electronic signature is used.
Where an electronic signature is required by the parties to an electronic transaction (which may be a transaction of a commercial or non-commercial nature) and the parties have not agreed on the type of electronic signature to be used, that requirement is met if (i) a method is used to identify the person and to indicate the person’s approval of the information communicated; and (ii) having regard to all the relevant circumstances at the time that the method was used, the method was as reliable as was appropriate for the purposes for which the information was communicated.
Where an electronic signature is not required by the parties to an electronic transaction, an expression of intent or other statement is not without legal force and effect merely on the grounds that (i) it is in the form of a data message; or (ii) it is not evidenced by an electronic signature, but is evidenced by other means from which the person’s intent or other statement can be inferred.
Given the definition of “data” in the ECTA as “electronic representation in any form”, and that an “electronic signature” is “data attached to, incorporated in, or logically associated with other data and which is intended by the use to serve as a signature”, an emoji may, in our view, fall within the definition of “data”. If the emoji is attached to, incorporated in, or logically associated with other data, it could constitute an electronic signature if intended to serve as a signature, provided that a signature is not required by law.
Therefore, the first hurdle to pass under the ECTA is intent – both as to the use of the emoji as a signature, and, naturally, as a consequence, the intent to be bound by the contract. The ECTA does not prescribe that the intent must be actual intent – it can be evidenced by other means from which the person’s intent or other statement can be inferred.
Obviously, the use of, say, the “crying face” emoji could not, in any sensible understanding, constitute evidence of intent to serve as a signature. But the “thumbs up” emoji may be. It is clear that in the Canadian case, Justice Keen investigated the background to the parties’ conduct and how they usually conducted business, and concluded in paragraph 18 that:
“The question is not what the parties subjectively had in mind, but rather whether their conduct was such that a reasonable person would conclude that they had intended to be bound (Aga at para 37). The courts, when considering this question, are not restricted to the four corners of the purported agreement, but can consider the surrounding circumstances (Aga at para 37). The nature and relationship of the parties and the interests at stake help inform the question of an intention to create a legal contractual relationship (Aga at para 38).”
This is similar to our reliance theory, which requires a party to create a belief held by the other contracting party and for the other contracting party’s reliance on such belief to be reasonable in the circumstances. Taking into account all factors, the use of a “thumbs up” emoji (or even the “fist bump” emoji, which is also a sign of agreement) can constitute an intent to serve as a signature, if this can be inferred from such conduct and, therefore, constitute intent to enter into the resulting contract.
Until the South African legal system has to decide on a matter with similar facts, we may not have a clear answer on whether an emoji could replace signatures as we know them. Therefore, be mindful when contracting via messaging platforms like WhatsApp, as an emoji – depending on which one is used – may create a valid and binding contract. Much will depend, we believe, on the facts of the matter and whether reliance on the emoji could be said to be reasonable.
Brian Jennings was a Director (at the time of writing) and Storm Arends an Associate in Corporate and Commercial | Cliffe Dekker Hofmeyr.
This article first appeared in DealMakers, SA’s quarterly M&A publication.
In recent years, mergers and acquisitions (M&A) have emerged as a significant avenue for investment in Africa, attracting attention from both global and local market participants. Importantly, M&A has reshaped the banking industry’s dynamics and prompted debates on the implications for financial stability, competition and economic development. While there may be critics of M&A as it relates to consolidation, it is crucial to recognise the benefits that well-executed M&A can bring to the continent’s banking sector and economic fortunes.
Access Bank has been working tirelessly to execute our vision to be the world’s most respected African Bank. Through disciplined and carefully considered dealmaking, we have made great strides in building a strong global franchise, focused on serving as a gateway and support for investment and trade within key markets in Africa – as well as between Africa and the rest of the world – by leveraging the power of technology and a robust network of relationships across the countries in which we operate.
In the past 12 months alone, we have announced nine transactions in seven countries across the continent, including Uganda, Zambia, Angola, Tanzania, the Gambia, Sierra Leone and Cameroon. This has increased our reach and enabled us to establish operations across 14 African countries (with plans to expand to 20, in line with our 2027 strategy). While the main objective of every transaction has been to build the scale needed to become a major player in each of our markets, we continue to be guided by the belief that prosperity is cultivated through inclusive growth and economic development. The Bank has leveraged its propositions for Small and Medium Enterprises (SMEs), Women and Youth, and recognised their pivotal role as the backbone of a thriving economy. Our acquisitions, therefore, seek to enhance the capability of human capital in prospective countries, building their economic prosperity and creating positive impact in our host communities.
Our approach to M&A has also emphasised regional integration as a strategic imperative. In a continent marked by asymmetrical markets and economies, the African Development Bank (AfDB) has noted that regional economic integration is essential for Africa to realise its full growth potential, to participate in the global economy, and to share the benefits of an increasingly connected global marketplace. Having 54 individual countries, often without the physical and economic machinery to act in tandem, seriously limits this possibility. M&A is key to this integration, as it facilitates cross-border expansion, enabling banking institutions to play a significant role in fostering economic development.
The breadth of Access Bank’s operations across 20 markets globally will enable it to become Africa’s payment gateway to the world, creating a globally connected community, inspired by Africa. By building this multi-jurisdictional footprint, committing over US$680 million through greenfield initiatives and inorganic growth facilitated by targeted M&A activities, we have ensured that the continent’s most impactful customers are able to benefit from a larger combined balance sheet. Customers now also benefit from a broader international footprint – with increased access to trade finance, treasury, international payments and loans via Access Bank’s wider distribution network – and presence in the key trade corridors which connect Africa with Dubai, China, Lebanon, Paris, Mumbai, the UK and Hong Kong, as well as other key markets.
Access Bank has continued its impressive growth trajectory, both organically and by acquisition. Our most recent large-scale transaction was the acquisition of Standard Chartered Bank’s (SCB) operations across Angola, Cameroon, the Gambia and Sierra Leone, and its Consumer, Private & Business Banking business in Tanzania. Access Bank’s acquisition in these five markets aligns with its disciplined approach to expansion, representing a key step in its journey to build a strong global franchise, focused on serving as a gateway for payments, investment and trade within Africa, and between Africa and the rest of the world. Access Bank’s strategic global presence allows for enhanced cross-border transactions, correspondent banking services, and smoother remittance processes. This seamless global connectivity ensures that customers can conduct business efficiently, and access international markets with ease.
Moving further down south to Zambia, we have recently completed our acquisition of African Banking Corporation Zambia Limited, trading as Atlas Mara Zambia (Atlas Mara), after obtaining all requisite regulatory approvals. This transaction will propel the combined entity into the top five banks by revenue in the Zambian market, with prospects to be in the top three by 2027. We also expect to create a larger platform to access the COMESA banking opportunity, supporting customers within the region through the Access Bank network.
But these transactions only paint part of the picture, serving to confirm that an uptick in M&A in African banking should be viewed as a channel for investment, and a strategic move towards unlocking the continent’s immense banking potential. By fostering technological innovation, financial inclusion, regulatory compliance, regional integration, risk mitigation and international competitiveness, M&A emerges as a catalyst for sustainable economic growth and development in Africa. These advantages contribute to the industry’s adaptability, resilience, and ability to provide enhanced services to customers in an evolving economic landscape. As this transformative journey is navigated, it is imperative to recognise the long-term benefits that strategic consolidation can bring to the continent’s banking landscape, and its broader economy.
Access Bank’s vision for growth and expansion in Africa is a promising one that seeks to roll out initiatives that will further develop the African continent and, more importantly, reshape the global perception of Africa and African businesses.
Oluseyi Kumapayi is Executive Director | African Subsidiaries, Access Bank Plc
This article first appeared in DealMakers AFRICA, the continent’s quarterly M&A publication.
By Duma Mxenge, Business Development Manager at Satrix
You’ve DIY-ed your kitchen counters, spruced up your bedroom and beautified the bathroom. Now, maybe it’s time to turn your DIY talents to something else: your finances. DIY investing means managing your investments yourself. It means taking control, plotting a plan, gathering your tools and team, and staying the course to reach your investment goals.
That could mean making an investment via SatrixNOW, or managing a real estate asset, for example.
Here are some top tips for DIY investing:
1. You Don’t Need a Finance Degree to DIY
Curiosity and a willingness to learn are the two greatest attributes needed to master DIY investing. Don’t be afraid to ask questions, seek help from your financial adviser, and leverage learnings from free and online resources. Ultimately, DIY investing means being an active participant in your investment plans and owning any decision-making. You don’t need any qualifications to have ownership over your finances; these are your assets, and it’s your responsibility to make the right decisions to live with financial confidence, now and in the future.
2. What are the Benefits of DIY Investing?
This biggest benefit is that you’re in the driving seat; you make the decisions and have greater control over your investments. Doing it yourself can also reduce fees, although it’s always wise to invest in sage advice from a trusted adviser to set yourself up for success.
3. What are the Potential Pitfalls of DIY Investing?
Choosing an asset that doesn’t align with your risk tolerance and timelines could be a potential pitfall. For example, investing the bulk of your retirement savings in cryptocurrencies the year before you retire could bring a lot of uncertainty and prospective losses, given the massive swings in value that this asset class could experience. Risk means the uncertainty and swings in value related to a particular investment or fund.
Generally, riskier assets may yield greater returns, but more conservative assets come with less volatility. You need to understand yourself and how much risk you’re willing to tolerate. You also need to know your goals and their timelines. The magic of compound interest, for example, can only really be capitalised on over a longer investment horizon. Finally, it’s important to understand any fees you’re paying; these can be a performance drag, so try to keep them to a minimum.
4. How to Mitigate Risk and Make the Most Out of Self-Directed Investing
Know your risk tolerance: introspection is key to investing as it’s critical to understand yourself. It’s also vital to know and understand what you’re invested in – and why. This requires your investment partner or platform to be transparent with you, coupled with proactivity on your side as you seek to know more.
Lastly, don’t be in a rush to start big in the hopes of winning big. Once you’ve done your research and have a plan, it’s okay to start small. Investing is a long game and even the smallest amounts add up. Question anything that sounds too good to be true: it probably is. To make the most of self-directed investing, you need to have a genuine curiosity for it. Sometimes information won’t come to you, so you need to go and find it. Seek guidance when you need to; investing by way of intermediaries is a great option as well.
5. What to Do Before You Take the DIY Plunge
Consider chatting to a financial adviser or do as much self-directed research as possible before diving into your DIY adventure. The markets are always evolving, so you can never know everything, but you can know enough to have the confidence to start the process and learn as you (and your investments) grow.
Many people adopt a ‘hybrid model’ and do some of the investing themselves and some through a brokerage. It all depends on your goals, personality and affordability. There’s no one-size-fits-all-formula; it’s all about you – how you prefer to learn and invest and what you’re willing to do to make it work. Make it your own, have confidence in yourself, and just start the journey.
Disclaimer Satrix is a division of Sanlam Investment Management Satrix Investments (Pty) Ltd is an approved FSP in terms 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 (RF) (Pty) Ltd (Satrix) is a registered and approved Manager in Collective Investment Schemes in Securities. 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 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.
SatrixNOW is a no-minimum online investing platform from Satrix that allows you to buy and sell ETFs directly.
Unlock the Stock is a platform designed to let retail investors experience life as a sell-side analyst. Corporate management teams give a presentation and then we open the floor to an interactive Q&A session, facilitated by the hosts.
In the 31st edition of Unlock the Stock, we welcomed WeBuyCars to the platform for the first time. With much excitement ahead of the listing of this group on the JSE in April, the management team gave current and prospective investors an opportunity to ask questions about the business model and financial performance.
As usual, I co-hosted the event with Mark Tobin of Coffee Microcaps and the team from Keyter Rech Investor Solutions. Watch the recording here:
Get the latest recap of JSE news in the Ghost Wrap podcast, brought to you by Mazars:
Brait placed R900 million worth of shares in Premier (JSE: BAT)
This represents 11.6% of total Premier shares in issue
When Brait initially told the market that it wanted to reduce its stake in Premier to raise cash, the intention was to unlock R750 million through the placement. Thanks to strong demand for the shares, Brait subsequently increased the placement size to R900 million. Even at that level, it was significantly oversubscribed.
The price at which the shares were placed was a 6.7% discount to the 30-day VWAP, which under the circumstances is quite good I think. You have to remember that a whopping 11.6% of Premier shares in issue were sold through this process. Doing that through the order book on the JSE would almost certainly have been a far worse outcome.
Brait’s stake in Premier reduces from 47.1% to 35.4% as a result. The free float of Premier increases from 22.0% to 33.6%.
Brait’s share price closed 4.5% higher on the news. When a company is trading at a deep discount to underlying assets, turning those assets into cash inevitably helps to close the discount.
Copper 360 moves ahead with Nama Copper (JSE: CPR)
The due diligence has been successful
Copper 360 announced the acquisition of Nama Copper Resources in November 2023. The envisaged price was R200 million, subject to a four-month due diligence process.
The due diligence went well, with R140.5 million paid to date under the deal and a management team having been appointed. A further R9.5 million is payable in the next two weeks.
The change to the deal is that Mazule, the seller, is no longer the offtake partner. The final R50 million owed to them will therefore be paid in cash across three monthly instalments over March to May 2024. Prepayments from the new offtake partner (Fujax UK) will fund these payments. The prepayments over the next few months will be subtracted from amounts due by Fujax over five years, with interest on the remaining balance applied monthly.
Remgro: firmly in the wrong direction of travel (JSE: REM)
What has gone wrong at Heineken Beverages since the Distell deal?
Remgro released results for the six months ended December 2023. It really hasn’t been a happy time, with the intrinsic net asset value (INAV) per share down by 4.6% to R236.95 in the space of just six months.
The share price? That’s at R130.98, a discount of 45% to the INAV. You can compare this to Sabvest below, trading at a discount of roughly 37%. There’s no way of escaping a discount to INAV for these groups; it’s just the extent of the discount that varies.
Unlike at Sabvest, Remgro accounts for some of its investments on a consolidated basis. The group reports headline earnings, but I just don’t think that’s very helpful for an investment holding company, unless you’re digging into the earnings of the underlying portfolio companies.
Speaking of which, there’s trouble at Heineken Beverages. In the comparable period, Distell’s contribution was R517 million in headline earnings. After the deal, Heineken Beverages managed to contribute a spectacular loss of R208 million, while Capevin contributed R57 million. That’s really bad. Remgro has now impaired the investment in Heineken Beverages by R3.5 billion.
There are other reasons for concern as well, like the entirely uninspiring performance of Mediclinic and the pressure on earnings at CIVH due to higher finance costs. TotalEnergies also recognised a negative fair value adjustment on its Natref stock in this period, with Remgro suffering a portion of that.
This is an awkward set of numbers for Remgro that gives the market very little (if any) confidence about the recent dealmaking track record.
Sabvest Capital releases its financials (JSE: SBP)
This is the first drop in NAV on a one year basis in twenty years
Sabvest is seen as one of the better investment holding companies on the JSE. It still trades at a discount to net asset value (NAV) per share though, with the share price at R69.00 vs. NAV per share of R109.36 as at the end of December 2023. This is despite having a portfolio of thirteen unlisted vs. three listed investments. Generally, having assets with no other access points on the market drives a lower discount to NAV. Even then, it’s tough for these types of structures on the local market.
The company accounts for its investments at fair value, which means growth in NAV per share is the measure of success. The 15-year compound annual growth rate (CAGR) in NAV per share is 17.2%, excluding reinvestment of dividends. Including reinvestment, it comes in at 18.5%. This is a strong track record.
Over 3 years and 5 years, the CAGR in NAV per share is 13.7% and 13.3% respectively.
Aside from being caught out by the pain at Transaction Capital (in which Sabvest has an important stake), the other significant knock was felt in ITL. This is the Intelligent Labelling Solutions business, which saw disappointing retail demand in the northern hemisphere among various other challenges.
These problems (along with the broader macroeconomic challenges in South Africa) led to a poor year for NAV growth, coming in at a 0.7% decrease. This is the first drop in NAV per share in a single period for over 20 years! It won’t do the CAGR track record any favours and they will certainly hope that this won’t be repeated. They expect to “resume satisfactory growth in NAV per share” in 2024.
The total dividend for the year of 90 cents was in line with the prior year. Share buybacks for the year came in at R11.8 million vs. R9.5 million the prior year.
The market has spoken re: WeBuyCars (JSE: TCP)
Transaction Capital’s pre-capital raise is complete
Transaction Capital had a tough day on the market, closing 7% lower after announcing the results of the pre-listing capital raise for WeBuyCars. R902.7 million was raised and the placement was priced at R18.75 per share in WeBuyCars.
The market probably didn’t like this because Transaction Capital offered shares at between R21.08 and R24.54 per share and investors weren’t interested at this price. The bookbuild was oversubscribed at R18.75 per share, but Transaction Capital elected not to accept all bids, so the amount raised was at the bottom end of guidance.
The implied market cap based on this pricing is R7.82 billion for WeBuyCars. I must be honest that I’m not sure how they expected to get up to 30% more than that in terms of valuation, which was implied by the upper end of the pricing range in the initial announcement.
A R7.8 billion valuation looks decent to me!
You can watch the recording of the recent Unlock the Stock event featuring the management team of WeBuyCars here:
Little Bites:
Director dealings:
An associate of a director of Quantum Foods (JSE: QFH) has bought shares worth R5.44 million. The price paid was R10 per share and this was an off-market trade.
Des de Beer has bought another R1.66 million worth of shares in Lighthouse Properties (JSE: LTE).
A director of Standard Bank (JSE: SBK) bought shares worth R187.5k.
An associate of a director of Libstar (JSE: LBR) bought shares worth R144.5k.
Shareholders in Marshall Monteagle (JSE: MMP) voted unanimously in favour of the disposal of Stromesa Court.
Few things in life are sure bets and that’s as true in the world of cycling as it is in the world of investments.
Ask sprint champion, Mark Cavendish, who spectacularly crashed out of the Tour de France in 2021, just as he was about to overtake Eddie Merckx’s legendary record of 34 stage wins. (Ouch.)
That said, there are rare instances in which the golden goose does lay a golden egg (or yellow jersey) and the government’s R500 000 tax-free savings allowance is one of them.
Introduced in 2015 to help stimulate a savings culture, it provides South Africans with an opportunity to invest up to R36 000 a year in a Tax-Free Savings product up to a lifetime maximum of half a million rand.
Since helping investors to achieve financial security is what gets the Fedgroup team up in the morning, we’re big fans of any initiative that incentivises South Africans to save. Especially one that carries no tax. Yet oddly, the Tax-Free Savings Account (TFSA) seems to be perceived as a starter product for novice investors or young professionals rather than the gift it is for anyone with an investment portfolio.
Investment gold
However, let’s be clear: a golden egg is not necessarily a golden ticket to awesome returns.
Not all tax-free products are created equal, and, like all investments, it takes some homework to understand the different structures and costs associated with the different TFSAs out there.
If the objective is to achieve the highest net return, then an investor’s challenge is to find the sweet spot between higher-risk equity products that are susceptible to market volatility and fixed-rate TFSAs that offer lower, but more stable, returns.
They also need to be watchful that their tax savings aren’t being eaten (in some cases, devoured) by product fees, which can have a significant cumulative impact on a TFSA’s value over time.
It’s the climb
Time is one of the many things we think about differently at Fedgroup. Most TFSAs are marketed as stand-alone investments to fund some of life’s short and medium-term expenses, like that big fat Plett wedding or mid-life Harley Davidson. And, though they certainly can do that, we’d argue there are more suitable investment products out there to meet those milestone moments.
To realise the full potential of a TFSA, it needs to be viewed as a long-term investment, as the government presumably intended. Particularly since even those who can put away the full R36 000 every year will take at least 13-odd years to reach the R500 000 threshold. And, more likely, it’ll take a couple of decades or more to hit the max. So, it makes sense for investors to recognise they’re in it for the long haul and sit back to enjoy the full tax break and benefits of compounding returns.
That’s why we developed a TFSA that’s geared, not for rainy days, but to grow wealth over the long term – as part of a properly diverse portfolio – and give our investors financial peace of mind for life.
Pushing the envelope
Stability is always our North Star and, in this instance, we opted for a specialist endowment-based product with zero fees, that has a couple of significant advantages.
First, because its underlying assets are not tied to market sentiment, it is counter-cyclical and able to deliver consistent, market-beating returns. (In fact, current returns on our product don’t just beat the prevailing bear market, they have delivered over 11% net of everything over the past year.)
Second, we’ve developed a product that charges no investor fees as we believe there should be no unnecessary erosion of either the tax-free benefits or investor returns.
To simplify things further, thanks to its endowment structure, our TFSA doesn’t form part of an investor’s estate so, if the worst happens, beneficiaries receive the proceeds faster. This will give them access to funds to cover costs and ongoing expenses much quicker in the immediate aftermath.
Just as Tour de France fans have their favourite cycle legends, investors have their preferred TFSAs. In both cases, they are free to back a different winner at any time, particularly as they see advances in performance.
So, whether you already have a TFSA in your portfolio, or are thinking about investing in one, you might want to check which ones are sprinting ahead.
Fedgroup is a specialist financial services provider with a legacy of putting people before short-term profit. For over 30 years, we’ve delivered market-leading financial solutions that not only enhance value for our clients, but remain straightforward, transparent and easy to understand.
Westbrooke Yield Plus just achieved its strongest annual performance since inception, showing why private debt is becoming an increasingly popular asset class for investors seeking higher yields.
Over the past 12 months, an investment in the JSE Top 40 would’ve lost roughly 4% of its value as measured in rands. It’s even worse when expressed in dollars, with the rand having depreciated from R17.90 to R19.00 against the dollar in the past year. In global terms, the wealth of South Africans was eroded last year, just as we’ve seen in years prior.
This is a very serious problem for local investors. South Africa’s economic and political future is uncertain to say the least. Although risk is part of any wealth creation journey, the problem is that the returns simply aren’t coming through to make up for the risks.
This drives South African corporates and individual investors to look offshore for opportunities. Global public markets (like the Nasdaq) are exceptionally volatile, especially in the technology sector and other “hot money” areas of the market. This means a bumpy ride, which isn’t suitable for all investors. Even for those with higher risk tolerance, a sensible approach to portfolio construction would include some lower risk assets that carry appealing yields.
Thankfully, in this environment of higher interest rates, attractive yields still exist. In 2023, Westbrooke Yield Plus enjoyed its strongest performance since inception, with a net investor return of 9.2%. That return is measured in GBP, so the rand return was even stronger.
To achieve yields of this level in so-called “hard currency” demonstrates the value of looking beyond equity and bond exposures.
Why do equities tend to underperform when rates move higher?
When interest rates are sitting at relatively high levels, equities tend to deliver disappointing results to investors. This is because of two major factors.
The first is that debt costs go up, so there’s simply more economic value flowing to lenders than before. Equity holders are getting a slice of a smaller pie. To make matters worse, higher rates are often due to elevated levels of inflation. This leads to enlarged balance sheets and a need to raise funding for these balance sheets, often from banks. This is why bank earnings tend to improve during these times and corporate earnings come under pressure as rates move higher.
The second is that higher yields drive a higher required rate of return, which means equity valuations come under pressure. The impact isn’t felt equally across all companies, as those with strong current cash flows are less severely impacted than growth stocks that are typically valued based on cash flows to be earned several years in the future. This drives substantial volatility in markets that have a heavy tilt towards growth stocks, like the US market.
Do bonds make up for this?
Government bonds are the traditional source of diversification and yield in balanced portfolios. This doesn’t mean that capital values are safe – far from it, in fact. When rates are volatile, bond values can change significantly. The only way a bond investor has reasonable certainty over returns is by holding a bond until maturity, which means locking in the capital for several years. If liquidity is needed before then, the investor is taking significant risk on the pricing of the bond.
To add to these challenges, government bonds pay a lower yield than private debt funds. This is a function of risk, as the basic principle in a stable market is that the government is the lowest risk borrower around. UK 10-year bond yields are currently sitting at just over 4%, which happens to be very similar to the yields on US 10-year bonds at the moment.
The question for an investor is whether this yield is an attractive enough reward for locking money up for 10 years or facing substantial risk to capital values. Westbrooke Yield Plus and its return of 9.2% gives food for thought, particularly as it has defined liquidity mechanisms as well. The fund targets a return of cash plus 5% to 7% per annum, with cash defined as the Bank of England Base Rate. Over the course of 2023, that base rate increased from 3.50% to 5.25%. This means a targeted return well in excess of what government bonds are offering.
These are lucrative yields for investors, particularly measured in pounds sterling rather than rands. Of course, assessing this return requires a proper understanding of the risks in private debt funds like Westbrooke Yield Plus.
A portfolio of private debt exposure
To achieve these yields, Westbrooke Yield Plus lends to a portfolio of private companies. The key here is to achieve appealing risk-weighted returns, but mitigate private debt exposure. Banks are generally not able to service this market effectively, creating an opportunity for a private fund to step in and make selected loans to private opportunities that meet the requirements.
The fund currently has around 48 underlying loans, with a 56% weighted average loan-to-value in the underlying businesses. No individual loan exceeds 7.5% of the fund. As at the end of December 2023, there were no loans in default and there was one real estate loan on the watch list, representing 0.3% of the net asset value of the fund. This is where loan coverage is essential, as well as the underlying commercial terms of the deal. In cases where loans do end up in default, private debt funds aim to have sufficient loan-to-value coverage and other protections to recover all or most of the loan.
The average weighted loan term in the fund is currently 22 months, with almost half of the loans in the fund maturing during the next year. This short-term nature of the debt is important to balance the risk-return characteristics. Finding enough high-quality opportunities can therefore be a challenge, requiring a strong team on the ground that understands the market. Westbrooke addresses this by having experienced resources in the UK who manage the portfolio and execute transactions.
In terms of sector exposure, 70% of the portfolio is real estate backed and 30% is corporate backed. Within the real estate portfolio, commercial property is nearly half of the exposure, with hospitality and mixed-use contributing 16% and 20% respectively. The rest lies in residential and student properties. This mix of exposure is important in managing the risks in the fund.
Can the strong returns continue?
Naturally, there are no crystal balls here. Any investment has elements of risk and this is no different. Importantly though, it’s possible to look at the current macroeconomic situation and form a view on the near-term rate cycle.
After much exuberance in equity markets about the potential for rate cuts as early as next month, expectations have had to come back down to earth. Inflationary risks are still present and the general sentiment in the market is one of “higher for longer” when it comes to rates. For private debt funds that properly manage their risks, this is good news as it suggests another year of appealing returns could be ahead.
To manage the risk of a decrease in rates in the latter part of this year, Westbrooke Yield Plus is seeking to increase the proportion of fixed rate loans in the medium term. Ideally, a fund wants to have floating rate loans as rates increase and fixed rate loans as they decrease.
Perhaps most importantly, the interest rate volatility continues to create a dealmaking environment that rewards the information asymmetry that is generated from extensive experience and relationships in the UK market. With the existing book in good shape and market conditions continuing to offer favourable opportunities, 2023’s record year is a strong foundation for investors to be rewarded once more in 2024.
Westbrooke is currently accepting trades for the quarter ending March 2024, with applications closing on the 27th. To learn more or invest, visit www.westbrooke.com/yield-plus or contact their team on info@westbrooke.com
Founded in 2004, and with offices in South Africa, the UK and the USA, Westbrooke is a multi-asset, multi-strategy manager of alternative investment funds and co-investment platforms. Our purpose is to preserve and compound our clients’ wealth to cement their future prosperity.
Get the latest recap of JSE news in the Ghost Wrap podcast, brought to you by Mazars:
Brait to sell down R750 million worth of Premier shares (JSE: BAT)
Several bookrunners have been appointed to place the shares
It’s time for RMB, Investec and Standard Bank to get their little black books out. Brait has appointed these institutions as joint bookrunners for the placement of R750 million worth of shares in Premier Group.
In simple terms, this means that Brait is selling down its stake in Premier (which is also a listed company) to the extent of R750 million. To try and do this through the order book on the JSE would obliterate the Premier share price and take a long time, so it’s better to do this via a placement of the shares with interested parties. The banks effectively act as matchmakers here, tapping into their institutional contacts to see who wants more stock.
Brait will be using the proceeds for “capital optimisation” purposes, which sounds like a fancy way of acknowledging that they need money to reduce debt and to assist with negotiations around the exchangeable bonds etc.
Shocked and appointing a committee: no, it’s not our president – it’s Bytes! (JSE: BYI)
I’ll start with the good news, which is that Bytes released an encouraging trading update for the year ended 29 February 2024. Gross profit and adjusted operating profit both grew by over 12% – and that’s measured in GBP. Gross Invoiced Income was up more than 25% though, so I interpret this as meaning there is margin pressure in the system i.e. they are working harder for every additional bit of profit.
The cash position at year-end is around £89 million.
Separately, the company released a strongly worded announcement regarding disgraced ex-CEO Neil Murphy. In an astonishing governance failure, he executed 119 undisclosed transactions in the company shares. Whilst there could never be an excuse for this, it’s made even worse by the fact there during this time, there was an investigation into a share dealing disclosure problem by someone else related to the board!
The board is “shocked” and has appointed a committee to investigate. It really does sound like the ANC wrote the announcement. The jokes continue to write themselves when you learn that the interim CEO, who we hope will bring more clarity to things, is a woman named Sam Mudd.
When a company is trading on a Price/Earnings multiple well north of 30x, you just cannot afford governance disasters like these.
Discovery’s normalised earnings head the right way (JSE: DSY)
Despite this, the share price closed 7% lower
Discovery’s share price has returned -9% over five years, excluding dividends. The dividends unfortunately aren’t very exciting either. I will genuinely never understand the appeal here, with the share price trading at the same levels seen in 2015. If the lost decade was a share price chart…
Anyway, the good news in this trading statement is that normalised profit from operations for the six months to December 2023 increased by between 10% and 15%. Normalised HEPS increased by between 7% and 12%. I must point out that Discovery is now reporting under IFRS 17 (the new insurance standard) and comparatives have been restated accordingly. Based on IFRS 17, base period profits were 16% lower than under IFRS 4 (the old standard).
In case you’re wondering, HEPS on a non-normalised basis was between -3% and 2% vs. the prior year, restated for IFRS 17.
New business annual premium income grew by 28%, which is perhaps the highlight of the result. Another attractive metric is that Vitality Global has grown normalised profit from operations by between 70% and 75%.
Despite the delistings trend, the JSE grew earnings (JSE: JSE)
In case you’re very confused, the JSE is a public company that is listed on its own exchange
Over the past few years, the trend in South Africa has been one of delistings of companies. Frustrated by a significant compliance burden and lack of liquidity, many small- and mid-caps have either taken themselves private or been bought out by a third party. Either way, the direction of travel is not good.
It’s not just the JSE dealing with this issue. If you look globally, there’s a shift towards private capital deals rather than listings.
To try and mitigate the impact, the JSE has been investing in other services. Non-trading income is now 36.8% of group operating income, up from 34.6% in the comparable period. This is why HEPS grew by 12.2% in the year ended December 2023, a solid result when viewed against the prevailing narrative of a reduction in activity in the local market.
I must point out that EBITDA was actually down by 2.3%. Net finance income was up 66.4%, supported by higher interest rates. Over the next 12 months, there’s likely to be an interest rate headwind or perhaps flat rates at best, so I would be very careful extrapolating the 2023 HEPS growth and hoping for it again in 2024.
The dividend is only up by 2% despite HEPS being 12.2% higher. I would treat that as another signal to be careful.
MC Mining releases the independent expert report (JSE: MCZ)
It supports the independent board’s belief that the offer is too low
The dance at MC Mining continues, with the independent board committee making the latest move. They’ve released the independent expert report prepared by BDO Corporate Finance.
The TL;DR is that the independent expert has suggested a range of A$0.214 to A$0.356. The offer price at the moment is $0.160 per share. On this basis, the expert has found that the offer is neither fair nor reasonable.
This really is such an interesting one, as it all comes down to whether the management team can deliver on the planning balance sheet activities going forward to unlock the value in the operations. If they can, then it’s possible that the offer will look opportunistic in hindsight. If they can’t, then shareholders may one day kick themselves for not accepting it.
If you are a shareholder here, make very sure you read all the documentation that has been released by both the company and the bidder.
Merafe achieved record profit in 2023 (JSE: MRF)
This is impressive under the circumstances
Despite a significant decrease in ferrochrome production, Merafe managed to increase revenue by 16% and EBITDA by 19% for the year ended December 2023. HEPS was up from 56.4 cents to 60.1 cents. The share price is trading at R1.44, so that’s quite the trailing Price/Earnings multiple!
You always have to be wary of low multiples in mining. Merafe has warned that 2024 is likely to see a slowdown in performance. Still, those who took the plunge in the past year have been rewarded with a 42 cents dividend per share for 2023, a lovely jump from 25 cents in 2023. It works out to mildly hysterical dividend yield of 29.2%!
Normalised earnings are flat at OUTsurance, but follow the cash (JSE: OUT)
There’s decent growth in the dividend
As we’ve seen across the sector, the first-time adoption of IFRS 17 makes the comparability of results quite difficult. This is why results are restated to show what would’ve happened if IFRS 17 was already in effect.
OUTsurance reports normalised earnings by segment and it’s a useful summary, showing that OUTsurance (i.e. the SA business) was down 3.4% and Youi Group (Australia) was down 15.5%. Some swings in the right direction elsewhere helped limit the damage at group level, with normalised earnings for the group up just 0.5%. These moves are all for the six months to December 2023.
Remember they sold OUTvest? That business made a normalised loss of R15 million in the previous interim period and R28 million for the full year. Thank goodness they gave up on that.
Normalised return on equity has dropped from 30.2% to 26.1%, which is to be expected when earnings growth underperforms. The cost-to-income ratio has deteriorated from 28.9% to 30.5%. Both those metrics are much better than banking groups can achieve, which tells you why those businesses try to add insurance operations to their banking strategies.
If all the “normalised” talk is making you nervous (as it usually should), then you would want to know that HEPS without normalised adjustments fell by 0.9%. The difference between this and the normalised increase of 0.5% mainly sits in adjustments for derivatives and group treasury shares.
Keep an eye on OUTsurance Ireland, where the group is investing heavily in the start-up phase. They incurred losses of R59 million in this period. Such losses are unavoidable initially, which is why it takes such a large balance sheet to incubate the launch of a business like that.
The interim dividend of 61.2 cents is up by 7.7%. That’s well ahead of earnings growth, so they aren’t shy of a higher payout ratio.
Sasfin’s earnings have fallen further (JSE: SFN)
There never seems to be a good story to tell with this bank
With several of the large banks having reported earnings for 2023, the direction of travel for HEPS was generally up. Not so for Sasfin, where HEPS has fallen by between 60.5% and 64.3% for the six months to December 2023.
This isn’t exactly a happy follow-up story to the news of the SARS legal action that broke in February. It never seems to go well for Sasfin.
The bank attributes the drop in earnings in credit impairments and fair value write downs of certain exposures. At a time when other banks were mostly in the green, this is more disappointing news.
Sibanye-Stillwater completes the Reldan deal (JSE: SSW)
Even when times are tough, bravecapital allocation is needed
In the mining game, the worst of times in the industry can be the best of times for deals. This is nothing new for Sibanye-Stillwater, with the company’s track record including various major deals at a time when nobody else was willing to buy anything.
The acquisition of Reldan in the US is by no means a betting-the-farm kinda deal, but at $155.9 million it also isn’t tiny. The price has been settled from the proceeds of a $500 million convertible bond issuance that was priced at 4.25% per annum.
The Reldan acquisition is part of Sibanye’s PGM strategy in the US. The business is broader than that though, with recycling of industrial and electronic waste that leads to the production of gold, silver, palladium, platinum and copper.
Double digit growth in the STADIO dividend (JSE: SDO)
For a growth company, the dividend is impressive
STADIO has released results for the year ended December 2023, reflecting HEPS of 24.5 cents per share. The share price closed at R4.58, so the Price/Earnings multiple is 18.7x. That’s high by JSE standards but not that high by education group standards. Still, STADIO is priced for growth, which is why the dividend underpin here is a useful part of the thesis. The share price has only managed to increase 8% over the past 12 months, so it’s just as well that there’s a dividend of 10 cents per share.
Student numbers grew by 9% in Semester 1 and 10% in Semester 2, so there’s a small acceleration there. Along with pricing increases, this drove revenue by 16%. HEPS grew by 23% as reported or 19% if you use their measure of core HEPS.
The construction of the STADIO Durbanville campus will start in 2024 if municipal approvals go ahead. It will be funded 50% through cash and 50% through long-term debt. This is an interesting strategy, as the five-year compound annual growth rate (CAGR) for contact student numbers is just 1%. Distance learning achieved 12% over the same period. STADIO is betting that if they build it, students will come.
Personally, I think they are right.
A bright year indeed for Sun International (JSE: SUI)
Records fall at SunBet and Sun City
Sun Internationalhas released results for the year ended December 2023. SunBet boasts record income and profitability and Sun City achieved record adjusted EBITDA before management fees. Overall, income was up by 7.0% and HEPS jumped by a whopping 88.1%.
Interestingly, the total dividend for the year was only 6.7% higher than the prior year. The dividend payout is based on adjusted HEPS, hence the major difference in growth rate vs. HEPS. Adjusted HEPS was only up by 4.6% to 468 cents per share.
It wasn’t all sunshine though, with Sun Slots suffering a drop in income thanks to load shedding. Casino income was down by 1%. Load shedding costs also put a dampener on adjusted EBITDA margin, which the group says would’ve been 28.9% without diesel costs vs. 28.1% net of diesel.
Net external interest costs increased by 19%, so that’s also a factor. Debt to adjusted EBITDA is at 1.7x, which is way below bank covenant levels.
The big focus, of course, is the proposed acquisition of Peermont that was announced in December 2023. Shareholders approved the deal in early March. Regulatory approval processes are now underway.
The narrative around the first few weeks of 2024 is positive, with reduced load shedding no doubt playing a role in that. Income and adjusted EBITDA are both growing.
The Peermont transaction is a risk, of course, but what else would you expect from a casino operator?
The share price is flat over 12 months, with quite the rollercoaster ride along the way. The 52-week low is R31.95 and the 52-week high is R45.29, with the current price being R38.76.
Thungela announces results and share buybacks (JSE: TGA)
After HEPS fell sharply in 2023, the company is looking to the future
If you want a nice, steady journey, then buying a single commodity mining company absolutely isn’t for you. Thungela’s revenue fell by 40% in the year ended December 2023 and HEPS was down 73%. The dividend was 80% lower. This is a rollercoaster ride, not a sleep-well-at-night investment.
To try and limit some of the volatility, Thungela made the strategic decision to enter the Australian market. Although investors tend to get very nervous when mining houses start doing deals like these (they are often a sign of the top of the market), one also can’t be blind to the infrastructure risks in South Africa.
Say what you want about the Aussies, at least they have working railways.
Despite the substantial year-on-year decline in profits, it’s certainly worth highlighting that adjusted EBITDA margin was still a meaty 28% in 2023. There was a lot of cash going around, with adjusted operating free cash flow of R6.8 billion and capital expenditure of just under R3.3 billion.
R3 billion of the capital expenditure was in South Africa and R300 million was in Australia. Although the group has taken the step across the ocean, the core is clearly still here in the land of Transnet. Having said that, another sign of the group’s international ambitions is the establishment of Thungela Marketing International in the United Arab Emirates, catering to both the South African and Australian assets.
The company has announced a share buyback of up to R500 million, With the share price down 44% in the past 12 months as earnings dropped, that makes sense.
With the volume of coal railed to the Richards Bay Coal Terminal having dropped 4.8% in 2023, the company (and the entire mining industry) is desperate for improvement at Transnet.
Transaction Capital gets the WeBuyCars capital raise underway (JSE: TCP)
There’s also an update on February trading at the company
Let’s start with the trading update for WeBuyCars for the five months ended 29 February. This gives us latest and greatest numbers as a backdrop to the pre-listing capital raise that the company is embarking on.
In February, WeBuyCars bought 14,354 cars and sold 13,132. Per-day sales volumes were in line with January and this has continued into March. Off revenue of R1.855 billion in February, they achieved core earnings of R66 million.
As you can clearly see though, inventory levels moved higher. The trend of increasing stock days has been there for a couple of years now. It was 24 days for the comparable 5 months to February 2022 and this has moved up to 30 days in the latest period, which is a pressure point for working capital.
Another interesting observation is that finance and insurance penetration has decreased from 21.4% in the comparable five months to February 2023 to 19.3% in 2024. The actual number of F&I units has gone up though from 12,588 to 12,778. There’s growth in these units, but not at the same rate as group sales.
The core cost-to-income ratio is also something to keep an eye on, up from 58.5% in the comparable five months to February 2023 to 64.0% in 2024. I would like to see this moving lower again as market conditions hopefully improve.
The group has R1.154 billion in debt, consisting of R733 million on the vehicle supermarket properties and R421 million in working capital financing.
Separately, Transaction Capital announced the opening of the pre-listing capital raise offer to qualifying investors. This is aimed at institutional investors, with Transaction Capital aiming to take between R900 million and R1.25 billion off the table in cash depending on the pricing achieved. This is the first real test of what the market will be willing to pay for WeBuyCars, so watch out for the results of this accelerated bookbuild.
Little Bites:
Director dealings:
The Foschini Group (JSE: TFG) is positioning a sale of shares by the ex-CEO as a portfolio rebalancing. In my view, if the shares were perceived to be significantly undervalued, there probably wouldn’t be a rebalancing at this price. The total sale is worth R21.4 million.
He’s back! Des de Beer has bought R7.9 million worth of shares in Lighthouse Properties (JSE: LTE).
An associate of a director of Quantum Foods (JSE: QFH) has purchased shares at R9.00 per share worth R1.3 million in an off-market trade and has agreed to acquire a further R2.56 million worth of shares at the same price.
A prescribed officer of Standard Bank (JSE: SBK) has sold shares worth R2.46 million.
The company secretary of AVI (JSE: AVI) received shares under an incentive scheme and sold the whole lot for R153k, not just the taxable portion.
Two directors bought shares in Libstar (JSE: LBR) to the value of R111k.
MTN Rwanda (JSE: MTN) released results reflecting service revenue up by 11.2% and EBITDA up by 6.8%. EBITDA margin contracted by 190 basis points to 46.4%. Due to higher financing costs, profit after tax fell by a nasty 28.9%. To make it worse, capital expenditure increased by 20.8%. The net impact was a 12.8% decrease in free cash flow.
South32 (JSE: S32) has announced some unfortunate weather-related news. Operations at Groote Eylandt Mining Company have been suspended because of Tropical Cyclone Megan. This impacts the Australian manganese business. If the spiders and snakes don’t get you in Australia, the weather will.
Eastern Platinum (JSE: EPS) has warned the market of the possibility of a late filing of its financials for the year ended December 2023. This is due to delays in the audit while the whistleblower allegations from April 2023 were investigated. The allegations were unsubstantiated in the end, so this is just a timing thing that could lead to a suspension in trade in the company’s shares if they can’t get the filings done in time.
Ibex Investment Holdings (JSE: IBX), previously Steinhoff Investment Holdings, released a cautionary announcement related to a potential offer to holders of the preference shares in the company to repurchase their shares.
2023 saw the 100th anniversary of The Walt Disney company – and a year of successive box office flops and award snubs. After a century in business, is everything still alright behind the picture-perfect facade, or are the cracks starting to show in this castle?
Where once there were Oscars
Disney has won a total of 150 Academy Awards between 1932 and 2024. Of these, 32 were won by Walt Disney personally. These awards were won across various categories, from Short Films to Best Original Song, Special Effects and Best Animated Feature.
The Best Animated Feature category is a relatively new addition to the Academy’s lineup, having only been introduced in 2002 for films released in 2001. Before the introduction of this special category, Disney’s signature animated films, including their respective songs, soundtracks, editing and effects, were judged alongside live-action films with no distinction between them. So in 1992, when Disney won Best Song for “Beauty and the Beast”, they competed against and beat the Bryan Adams hit “(Everything I Do) I Do It for You” from Robin Hood: Prince of Thieves. For me, those pre-2002 Oscar wins are a testament to Disney’s ability to make animated films of such calibre that they could compete on the same level as live action.
Following that logic, you would think that Disney would absolutely dominate the Best Animated Feature category from 2002 onwards. Unfortunately, the timeline simply doesn’t align. Disney’s “Renaissance” period, which is universally believed to have produced its best and most memorable films, was between 1989 and 1999. By the time the new Academy Awards category was revealed, Pixar Studios had taken over as the belle of the ball.
Absorbing Pixar in 2006 put Disney back on the winning streak in this category, from 2007’s Ratatouille to 2021’s Encanto, with Disney losing the Oscar only twice, to Spider-Man: Into The Spider-Verse (2019) and Rango (2012). But that’s where the good news ends. The award for Best Animated Feature, a category that you would expect an animation powerhouse like Disney to own, has continued to elude them since 2021.
Who’s eating Disney’s lunch?
This year, the Oscar for Best Animated Feature went to Hayao Miyazaki and Studio Ghibli’s The Boy and the Heron.
A legendary director with multiple award wins under his belt, Miyazaki initially retired in September 2013, only to reverse course after contributing to the short film Boro the Caterpillar. His involvement in this project reignited his passion, leading him to embark on a new feature-length endeavour. Storyboarding for The Boy and the Heron commenced in July 2016, followed by official production in May 2017. The film’s title was unveiled in October 2017, with plans for a release coinciding with the 2020 Summer Olympics.
By May 2020, 60 animators had meticulously hand-drawn only 36 minutes of the film, with no fixed deadline in sight. Production encountered numerous challenges, including setbacks caused by the Covid-19 pandemic and Miyazaki’s slower animation pace. The project was theatrically released in Japan on July 14, 2023
The release strategy is also noteworthy, as Studio Ghibli opted not to share any trailers, images, synopsis, or casting details prior to the Japanese premiere, save for a solitary hand-drawn poster. Despite this unconventional approach, the film garnered widespread critical acclaim and has amassed a global box office revenue of US$167.8 million so far.
By contrast, Disney was taking a very different approach during the 7 years it took Studio Ghibli to bring The Boy and the Heron to screen. Since 2016, they have released 13 live-action remakes of their animated IP, including such titles as Pinochio, The Lion King, Dumbo, The Jungle Book, Lady and the Tramp and Aladdin. Despite its commitment to the “remake era”, Disney also found time to release a number of original animated films since 2016, including Zootopia, Moana, Ralph Breaks the Internet, Frozen 2, Raya and the Last Dragon, Encanto, Strange World and Wish.
For those who are keeping score, that’s 20 Disney films released in the 7 years it took to make one Studio Ghibli film. This number excludes Disney’s other non-animation-related live-action releases, such as Bridge of Spies, as well as releases made by Disney-owned properties such as Pixar, Marvel and Lucasfilm (of which there were many). Of these 20 animated and live-action-remake films, only 5 have been recognised with Academy Awards.
A numbers game
When contrasting Disney and Studio Ghibli, we have to take into account that these are two very different studios. Disney is a behemoth with 225,000 employees and revenue of $89 billion in 2023. By contrast, Studio Ghibli is a relatively small fish, with 190 employees and online estimations of revenue of $23 million. The exact number isn’t important; the size differential is clear.
It isn’t plausible to expect Disney to sit around and work on one project for 7 years in the same way that Ghibli can (to be fair to Ghibli, they also released one other feature film and one short film during the development of The Boy and the Heron). Disney is a listed company with targets to reach and shareholders to placate. They need to keep the content coming. Where Studio Ghibli is betting everything it has on one horse, Disney prefers to enter as many horses into the race as it can.
Unfortunately for Disney, it seems to be the quality of the horses in the race that makes the difference here. The spate of live-action remakes has been met with almost universal disappointment from viewers and critics alike, mostly due to what many are referring to as a “wokeness” problem. This highlights one of the massive downsides of being a company that has been making films for 100 years: some of the early material didn’t age so well. Disney is trying its best to counteract the lack of diversity, female agency and representation in its earlier works by peppering their live-action remakes with well-intentioned but poorly executed token placements.
A good example of this would be the Snow White and the Seven Dwarves live-action film that is currently in production. The titular character, who is Snow White by name and description, is being played by a Colombian actress with olive skin. The seven dwarves have been replaced with seven “magical companions”. In an effort to not offend viewers at the height of cancel culture, Disney is dismantling the very core of the original story. And yes, maybe it is inappropriate in 2024 to make whiteness a feature and dwarfism a trope. But if that’s the case, we probably need to question why it is necessary to retell this story at all.
If you were hoping for more creativity from Disney in the coming years, you will probably be disappointed. The dream machine seems to be running out of steam, with a plethora of sequels on the cards in the coming years. Moana 2 and (inexplicably) a Moana live-action remake are on the way, side by side with Inside Out 2, Frozen 3 and Toy Story 5 – yes, a fifth Toy Story movie. Really.
I heard someone recently refer to Disney’s strategy over the last decade as “weaponised nostalgia”, and I really can’t find a better term for it than that. When you’re under pressure to fill cinemas and fuel a streaming platform, the one thing that seems like a safe bet is building on the stories that people have loved before. And because of the size and production power of the House of Mouse, it’s possible to stay in business even when the three main Disney feature films released in 2023 were consecutive box office flops. That kind of failure would sink an independent studio like Ghibli.
Fortunately, Disney has other streams of revenue, like the back-catalogue for licensing revenue and the entertainment parks and even cruises, helping it stay afloat – literally. Disney+ is also putting pressure, as streaming takes a very long time to become profitable. But at some point, even the life raft will spring a leak. Shareholders are expecting awards and box office hits and not getting them, and as we’ve seen with Miyazaki’s Oscar win, the competition is not exactly sleeping at the wheel.
About the author:
Dominique Olivier is a fine arts graduate who recently learnt what HEPS means.Although she’s really enjoying learning about the markets, she still doesn’t regret studying art instead.
She brings her love of storytelling and trivia to Ghost Mail, with The Finance Ghost adding a sprinkling of investment knowledge to her work.
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