Unlock the Stock is a platform designed to let retail investors experience life as a sell-side analyst. Corporate management teams give a presentation and then we open the floor to an interactive Q&A session, facilitated by the hosts.
This year, Unlock the Stock is delivered to you in proud association with A2X, a stock exchange playing an integral part in the progression of the South African marketplace. To find out more, visit the A2X website.
In the 28th edition of Unlock the Stock, we welcomed Bell Equipment and Calgro M3 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:
Mention the name “Craig Warriner” at your next gathering of friends, and you’ll be able to identify the BHI burn victims by the looks on their faces.
While former-insurance-salesman-turned-investment-messiah Warriner whiles away the hours in his specially-requested private jail cell, hoodwinked investors are coming to terms with the fact that they may never see their money again.
Sequestrator Cawood Attorneys is currently picking over the R4.78 million that remains in the BHI account (a shadow of the estimated R3 billion that Warriner lifted from investor pockets). Meanwhile, BHI trustees are considering an application to the high court to have the trust declared a ponzi scheme.
None of this is news to anyone who’s read a financial publication in the last week or so. As South Africans, we aren’t strangers to the concept of ponzi schemes either, what with the ghosts of Mirror Trading International, Krion and Africrypt still looming large in the corners of many a courtroom (editor’s note: not all ghosts are good for you). Which leads us to the same question we always seem to ask when a new ponzi scheme makes the news cycle: how does something like this happen?
What Kool-Aid and cults have in common
If you’ve found yourself in conversations on the subject of BHI recently, you may have encountered or even used the term “drinking the Kool-Aid”. While the product itself may not have made its way onto South African shores (the closest comparison we have locally would probably be something like Drink-o-Pop sachets), our exposure to American-made films and series means that this particular phrase has wormed its way into our lexicon nonetheless.
The meaning is clear though: when someone is “drinking the Kool-Aid”, they are committing to a possibly doomed or dangerous idea because of perceived potential high rewards. In case you’re wondering how such a bleak concept became associated with a sugary children’s drink, I’m happy to inform you – but be warned that the backstory is particularly macabre.
On November 18, 1978, roughly 918 people members of the People’s Temple cult – back then referred to as the People’s Temple Full Gospel Church – committed suicide by drinking cyanide-laced cooldrink at their compound in Guyana. Newspapers picking up the story reported that the compound was strewn with the empty Kool-Aid packets that had been used to create the deadly cocktail. Factually, this was incorrect – cult members had actually used a cheaper knock-off product called Flavor Aid – but that didn’t stop the image of those empty Kool-Aid packets from burning itself into the public subconscious.
Cult members performed what they believed to be “revolutionary suicide” at the instruction of their leader, Jim Jones, who founded Jonestown as a refuge from the perceived threat of fascism in America. The incident became widely known as the Jonestown Massacre.
Personality equals power
To understand how modern-day investors are able to fall into the trap of ponzi schemers, it actually helps to think about Jim Jones. Ask yourself: how did one man convince almost 1000 Americans to not only give him all of their income and assets, but to sell their houses, break ties with their families, quit their jobs and move to a jungle compound in South America?
The answer is the same as it is with many cult leaders: he had a powerfully magnetic personality that drew people to him. Charming on the surface, yet dominant enough to silence those who would try to speak up against him. And he wielded that personality like a superpower, drawing in people from all walks of life until the size of his following alone was enough to start magnetising new recruits.
Does that sound familiar?
Victims of Craig Warriner’s scheme often refer to the fact that he made extensive use of his St Stithians College old boys’ network, and appears to have made multiple donations to the school. By paying above-average commission fees (as high as 5%) to brokers, Warriner created the illusion of a man who was not only very wealthy but magnanimous in his wealth. All he wanted to do was help other people get wealthy. And that carefully constructed facade is all it took to reel in the money.
As much as we hate to admit it, we humans are herd animals. When enough of us start to move in one direction, the rest will start to lift their heads and wonder where we went. If you need clear evidence of this, consider that it is a well-established and studied fact that individual investors will follow the advice of their coworkers, even when the advice given contains no value-pertinent information. We value the advice and recommendations of those around us far more than we trust our own research and – in many cases – our own common sense.
So, what can we take from this article and apply when the Next Big Opportunity comes along?
Beware the charming leader who requires blind obedience. Real genius doesn’t hide its methods. If you’re being persuaded to “just trust” someone, that’s reason enough to do the opposite.
Consider your sources, and then consider them again. Be aware of your own tendency to believe the people around you simply because they are friends or family members. Look past the person making the recommendation and examine the facts in the cold light of day.
Don’t believe the hype. There’s no such thing as an investment that only delivers returns. If you can’t find a trace of a market dip ever, or if the promised returns seem too high to be true, then there’s reason to be cautious.
Remember: if investing was easy, we’d all be living in mansions. As much as you want to believe that there is a shortcut or an undiscovered path to the returns of your dreams, the chances of that being true are not worth risking your hard-earned cash on.
And if you’re currently feeling the BHI burn – my sympathies, friend. Hindsight is frustratingly perfect, isn’t it?
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.
Listen to the latest episode of Ghost Wrap here, brought to you by Mazars:
Clientele is acquiring 1Life Insurance (JSE: CLI)
We finally know what deal Clientele has been busy with
Clientele has been trading under cautionary for months now, with the first one having been released in June 2023. The guessing game around the potential deal is over, with the company announcing the acquisition of 100% of 1Life Insurance from Telesure.
The particularly interesting point is that the deal will be settled by the issuance of shares in Clientele to Telesure. In that respect, this is a merger more than an acquisition. Telesure will hold 26% in Clientele after this transaction.
Strategically, this is a good fit because 1Life is focused on the entry level mass market and mass affluent market, with Clientele having operated for 30 years in the entry level mass market. The announcement highlights that 1Life was the “first truly direct life insurer” when it commenced operations in 2006.
The combined businesses will boast almost 1.5 million contracts and an embedded value of around R7.8 billion. Embedded value is the basis on which life insurance houses are valued, with the price for 1Life set at R1.914 billion to be equal to the embedded value as at 30 June 2023, plus a control premium of 6.23%.
This is a modest control premium by usual dealmaking standards, which suggests that Telesure has bigger strategic plans with Clientele. If you need further proof of that, then lift your head from the 1Life price and just consider the price at which Clientele’s shares will be issued to Telesure: R16.25 (the embedded value of Clientele) vs. the current prevailing price of R10.90.
If you’ve ever heard of a “NAV for NAV” deal then, then this is the life insurance equivalent, based on embedded value.
In case you’re wondering about return equity, 1Life managed to generate profit after tax of R152.8 million for the year ended June 2023 off a net asset value of R1.7 billion. This is a return on equity of 8.9%. These returns aren’t good enough, so the benefit of scale and a combined effort will hopefully improve returns.
Clientele is one of the unsung dividend heroes that the market never talks about. The share price is up 1.9% this year and it trades on a dividend yield of just under 11.5%. The market response to this transaction was a flat share price, which is odd when you consider the size of this deal.
Dis-Chem’s first half performance needs a careful read (JSE: DCP)
The base effect and some once-offs appear to be skewing performance
When companies start trying to explain away poor numbers with excuses like the base effect and once-offs, you always need to be skeptical. In some cases, the explanations are perfectly justifiable. In others, they are rubbish.
If we look at Dis-Chem’s earnings for the first half, revenue growth was 9.4% and HEPS fell by 17.2%, with the dividend also down by 17.3%. That revenue number isn’t exactly a pedestrian performance, so the drop in HEPS is odd.
A further read reveals that the base year (FY23) had unusual seasonality, with a strong first half of the year that contributed 58.4% of the full-year earnings. The preceding two years were 48.5% and 47.1%. Again, this could simply mean that the second half of last year was a poor performance, so further reading is required.
H1’23 included a gain on a warehouse acquisition and the impact of COVID-vaccine related income. Added to this, the company acknowledges that reputational issues hit the H2’23 result, with those challenges spilling over into H1’24 (this period).
Until we see the second half of this financial year, we won’t know for sure whether the base period is the real reason for the drop in earnings in this period. Instead, it might be better to focus on the underlying revenue growth and gross margins, which aren’t impacted by the once-offs.
If we exclude COVID vaccines, retail revenue grew by 9.2%. Wholesale revenue grew by 13.5%, with sales to Dis-Chem’s own stores up by 12.5% and external sales (including to The Local Choice franchises) up by 19.1%. The Local Choice is expanding quickly, growing from 153 to 180 pharmacies.
Excluding the gain in the prior period related to the warehouse acquisition, total income margin was 30.5% in this period vs. 31.3% in the base.
Looking through all the noise, a reduction in retail margin from 30.2% to 29.8% is worth paying attention to. There’s a comment that investment in promotional activity in personal care and beauty was the major factor here, which simply means that Dis-Chem had to be more aggressive on price in those key high-margin categories to retain market share.
I must also note that retail expenses were up a significant 11.3%, or 10.8% excluding depreciation. New stores are a factor here, but employee costs up 9.8% is a concern when gross margin is under pressure. Employees costs are 64% of Dis-Chem’s retail expenses. Pharmacists in particular are very high earners relative to any other in-store employees.
Looking at the balance sheet pressures, net finance costs were up 33.2%. If you exclude the endless stupidity of IFRS 16 as well on interest on the new term loan, financing costs on existing debt increased by 15.7%. Capital is expensive right now and growth in inventory of 9% means a bigger balance sheet that needs to be funded. Of course, capital expenditure also needs to be funded, like investment in additional warehouse capacity.
For the two months since the end of this period, revenue grew 12.1% over the comparable period. This gives some support to the base effect argument. Still, with a higher cost of funding and pressure on margins, shareholders might need to be patient to reap rewards here.
Mantengu takes the next step in the capital raise (JSE: MTU)
Mantengu Mining is looking to raise up to R500 million from GEM
Around a week ago, Mantengu Mining announced a plan to secure up to R500 million in equity funding from two entities that are part of the broader GEM group. It’s an unusual structure, as the R500 million would be invested over time as and when Mantengu needs the money.
In these scenarios, a commitment fee is common. The investor needs to plan to have the cash available for drawdown and expects to be paid something for the pleasure. In this case, the commitment fee is 2% of the facility, or R10 million. It can be settled in cash or in shares, with Mantengu obviously only too happy to settle it in shares.
Although shareholders still need to approve this transaction, the company has issued shares to an escrow account to be released to GEM if the deal goes ahead. The issue price is R1.13 and just the commitment fee represents 6.49% of the issued share capital of the company, which shows you how dilutive the full capital raise is for existing shareholders.
Sephaku flags a drop in HEPS (JSE: SEP)
This covers the six months to September 2023 – well, sort of
Sephaku’s financial reporting is a bit tricky. The group has a year end of March, but Dangote Cement (known as SepCem) is an associate of the group (which means Sephaku holds a large non-controlling stake in it) and has a year end of December.
So, when Sephaku releases earnings guidance for the six months to September, it includes numbers from Dangote for the six months to June. This is an unusual situation, but Sephaku doesn’t control Dangote and hence can’t force it to align its year-end.
For the six months to September 2023 (sort of), Sephaku expects HEPS to drop by between 27% and 35%.
Detailed results are due for release on 14 November.
The selling by Mpact (JSE: MPT) executives continues, with the Brett Clark Family Trust (linked to the CFO) selling shares worth R1.4 million and a prescribed officer selling shares worth R560k.
Associates of the CEO of Spear REIT (JSE: SEA) sold shares worth R532k and bought shares worth R195k. This is part of a broader family restructure, although it’s obviously a net sale.
A non-executive director of Finbond (JSE: FGL) has bought shares worth R34k.
Octodec (JSE: OCT) announced a small related party transaction in mid-October. A fairness opinion is required for such deals, with BDO Corporate Finance opining that the deal is fair to shareholders.
The Ghost Wrap podcast is proudly brought to you by Mazars, a leading international audit, tax and advisory firm with a national footprint within South Africa. Visit the Mazars website for more information.
In this episode of Ghost Wrap, I recapped five important stories on the local market:
MTN’s African subsidiaries are causing headaches right now, with Uganda as the silver lining but too small to make up for the concerns in the others.
Woolworths is acquiring Absolute Pets and it’s a deal that makes a lot of strategic sense to me.
Pepkor is seen as a defensive retailer in South Africa, but does that thesis hold these days?
Octodec has growth its distribution per share despite a drop in distributable income – what does this tell us about REITs at the moment?
AB InBev must be cheering on the Springbok celebrations, as beer volumes have been under pressure this year.
Listen to the latest episode of Ghost Wrap here, brought to you by Mazars:
Collins should become a REIT this year (JSE: CPP)
This will trigger the declaration of a dividend
Collins Property Group (previously Tradehold) released results for the six months to August. The net asset value (NAV) per share has increased from R12.40 at 28 February 2023 to R12.62, with the share price closing at R6.97 and reflecting a significant discount to NAV that is common on the JSE.
Strategically, the group is focused on offshore expansion, particularly in the Netherlands. They are also looking at Germany. The group already owns six assets in Austria. To fund this, properties in South Africa are being sold, although the group is happy to increase its exposure to the Western Cape.
Concerningly for the economy at large, vacant space in the portfolio of mainly industrial warehouses increased from 3% in February 2023 to 4.04%. This was due to smaller tenants downsizing or closing up shop entirely. Not good.
The group is currently trying to convert to a REIT. Once that process is completed, they intend to declare a dividend.
There might be a takeover on the table for MC Mining (JSE: MCZ)
Also, there might not be
MC Mining is also listed in Australia. If you know anything about Australians, you’ll know that they are very strict when it comes to rules. Their takeover code has some differences to South Africa and you don’t want to get on the wrong side of it, so you’ll sometimes see unusual terminology in announcements related to Aussie-listed companies.
This is why you’ll see “take no action” in the heading of the latest SENS announcement by MC Mining. This is because although MC Mining has received a proposal letter from Senosi Group and Dendocept, there are certainly regulatory dispensations being sought that make the offer conditional at best.
The letter is described as being on behalf of shareholders and associates representing in aggregate 64.5% of the issued capital in the company. Further down, Senosi is noted as owning 23.4% and Dendocept holds 6.9% of shares outstanding. The maths isn’t mathing here and I’m not 100% sure what the reason for the difference is.
The point is that these two parties want to form a consortium to make an off-market cash offer for all the shares not currently held by the consortium. A letter had been previously sent to the board in September about an indicative offer, but it was an incomplete proposal. A pricing range of A$0.20 to A$0.23 per share was given in that letter. The latest letter doesn’t give an idea of pricing, but the previous range is obviously an interesting anchor.
The market latched onto it, with the share price jumping over 17% after the release of the announcement.
For now, the board has advised the market to take no action in regard to this proposal until further guidance has been received from the independent board committee.
If only MTN Uganda was bigger… (JSE: MTN)
Here’s some strong growth ahead of inflation
After MTN Nigeria released a very worrying update and MTN Ghana put out big growth numbers that are sadly below in-country inflation (and thus reflect negative real growth), it was good to see MTN Uganda grow EBITDA by 15.6% in a country where inflation is only 3.3%.
It looks good on literally all metrics, with subscribers numbers up and service revenue growing by 15.2%. while data revenue grew 22% and fintech revenue grew 18.1%. EBITDA margin was stable at 50.6%, which is also quite a big deal in this environment. Another important number is capital expenditure, which only increased by 4.7%.
MTN Uganda is also declaring cash dividends.
Is this the jewel in MTN’s African crown? It just might be. For MTN shareholders, the pity is that this is one of the smaller jewels, even though it might be the brightest.
Murray & Roberts reflects on the year that was (JSE: MUR)
There’s also news on the balance sheet
Murray & Roberts has lost three quarters of its value this year. There have been some ugly performances on the market, but Murrays makes a strong case for itself as one of the biggest disappointments.
At the AGM, the company reflected on some of the major points in the last financial year. Essentially, the balance sheet broke and couldn’t sustain the Australian business, so they put that side of things into voluntary administration and focused on keeping the rest of the group alive.
The balance sheet as at 30 June 2023 holds an important lesson. Net debt is only R300 million, but international groups are more complicated than simply a “net debt” number – and the clue is in the first part of that name. This is gross debt net of cash, but what if the gross debt and the cash are in two different places?
Murray & Roberts has R1 billion in debt in South Africa and its cash is predominantly offshore. To address this issue, the North American business units have revised their debt facility with their bankers and they will pay dividends to Murrays in January and June 2024. Other initiatives will add another R180 million to the pot for debt reduction, with the hope that South African debt will reduce from the current level to R300 million by June 2024.
It was R2 billion in March 2023, so that would be a massive improvement.
There’s a particularly interesting comment that the board is not considering a rights issue to reduce debt, but it is working towards a “sustainable capital structure” over the next six months, including a refinancing of debt. My view is that the risk is never gone until the balance sheet is completely fixed.
In other news, the Mining platform has grown its order book since June 2023. Sadly, the Power, Industrial & Water platform still has no “near orders” on the books. Finally, as previously announced, the company will still target opportunities in Australia on a selected basis.
It’s a smaller group now. Within the next year, it might even be a sustainable group. That won’t help shareholders recoup their losses in the near-term, but at least people will keep their jobs.
Pepkor’s like-for-like growth is still problematic (JSE: PPH)
There’s improvement at Ackermans, but HEPS for the year is in the red
Pepkor’s group revenue for the year ended September was 7.7% higher, but of course we need to dig a lot deeper than that. The first adjustment is for the 53rd trading week in this period. If we exclude that, revenue was up 6.5%.
It was firmly a tale of two halves, with growth of only 4.3% in the first half and a better performance in the second half.
Avenida in Brazil is working out well, now contributing 4.3% to group revenue vs. 2.4% in the prior year (as it was only acquired during that year). Most importantly, this is in line with guidance and well ahead of the original envisaged performance. I liked the thought of a South American expansion when that deal was first announced, as it feels like a more natural market for South Africans to enter.
Like-for-like sales growth is such an important metric, as it shows the underlying performance in the business. PEP managed 4.5% like-for-like growth for the full year, which means negative volumes because inflation was 7.3%. This is a direct result of pressure on local consumers. I must also point out that 4% of PEP’s sales are now on credit, vs. 0% historically.
Although Ackermans had a better second half after a disastrous first half, it could still only manage a like-for-like sales decline of 5.1%.
JD Group experienced a 2.1% decline in like-for-like sales and The Building Company was down 0.8%.
Due to impairments, there is going to be a collapse in reported earnings and Pepkor will report a loss. This is a function of underlying business performance and higher discount rates. Based on headline earnings from continuing operations, the expected drop is 5.2% to 15.2%.
The share price is down around 10% year-to-date.
Sibanye-Stillwater published a novel on SENS (JSE: SSW)
This quarterly update is huge
For the quarter ended September, Sibanye-Stillwater’s EBITDA was just over R3 billion. In the quarter ended June, it was R6.4 billion. In the quarter ended September 2022, it was R8.5 billion. Hopefully you now understand why (1) the share price broke and (2) this quarterly update is practically a published novel on the underlying performance.
In fact, it’s so huge that it has a table of contents!
You are welcome to go read the entire thing. The key points for the purposes of Ghost Bites are as follows:
EBITDA has gotten worse in all major operations, with the exception of zinc in Australia
The average basket price for the commodities has gone in the wrong direction (again, other than for zinc)
Against this backdrop of price pressure for commodities, all-in sustaining cost has increased because of inflationary pressure in costs
Restructuring activities are underway in the South African gold and PGM operations to try and address the slide in profitability
Sibanye’s share price has fallen 49% this year.
Textainer releases third quarter results (JSE: TXT)
Remember, the company is currently the subject of a takeover bid
Textainer has released numbers for the third quarter of 2023. Unfortunately, they also include this number:
Leaving aside the Dezemba levels of proofreading going on here, net income for the third quarter was $1.07 per share, down from $1.20 per share in the second quarter. Although the share repurchase program has been suspended in light of the potential transaction with Stonepeak, a dividend of $0.30 per share has been declared.
Little Bites:
British American Tobacco (JSE: BTI) announced that Soraya Benchikh will join the company as CFO from 1 May 2024. She is currently President, Europe at Diageo, one of the largest alcoholic beverage groups in the world.
They won’t win any corporate governance awards for this one, but Primary Health Properties (JSE: PHP) has announced the founder and CEO as the new non-executive chairman. Harry Hyman is stepping down as CEO, so he is moving straight into the chairman role. To make up for it, the company will beef up the independent non-executive directors.
Woolworths has announced its intention to acquire 93.45% of the shares in Absolute Pets from Sanlam Private Equity and Absolute Pets management. The remaining management-retained shareholding will be acquired by Woolworths over an agreed period post the completion of the transaction. While financial details were not disclosed as the deal value falls below the threshold for categorisation in terms of the JSE Listing requirements, the company did report that the purchase consideration would be settled in cash.
In September Senosi Group Investment and Dendocept, each substantial shareholders in MC Mining (23.4% and 6.9% respectively) made a confidential and incomplete, non-binding conditional and indicative offer to acquire the shares of the company for a cash offer in the range of A$0.20 – A$0.23 per share. The company this week received a letter signalling an intention to make an off-market cash takeover offer for the remaining shares in the company by the consortium comprising Senosi, Dendocept and shareholders and associates representing an aggregate 64.5% of the issued share capital of the company. The letter however did not provide a definitive offer price for the shares.
OUTsurance Holdings, an 89.7% owned subsidiary of OUTsurance Group, has acquired a further 2.64% stake in Australian insurance operation Youi from former CEO and founder of Youi for A$42,5 million. In March, the company acquired an initial 54,6 million shares. OUTsurance’s stake in Youi now sits at 94.64%.
Sibanye-Stillwater has exercised the option (due to expire on 5 November 2023) to acquire the Mt Lyell copper mine in Tasmania. Sibanye gained the option through its 2021 acquisition of New Century Resources. The mining group paid $10 million to Vedanta for the copper mine which was placed on care and maintenance in 2014. A feasibility study will be conducted to consider the re-establishment of the operation. Sibanye also announced the closing of its acquisition, from joint venture partner Anglo American Platinum, of the 50% stake in Kroondal and Marikana pool-and-share agreement, announced in early 2022.
The proposed R60 million disposal by Trustco of a 49% stake in Trustco Finance Namibia to Finbond has been terminated. The parties have, without giving reasons, agreed not to continue with the transaction but have indicated that they may revisit the deal in the future.
Unlisted Companies
Bushveld Minerals, the AIM-listed vanadium producer and energy storage solutions provider with vanadium mines and processing facilities in South Africa, has entered into a conditional agreement to acquire the remaining 26% stake in Bushveld Vametco. The minority stake is held by a BEE consortium which will receive 232,836,255 million Bushveld Mineral shares for the stake representing 13% of its enlarged share capital. 70% of the consideration shares will be subject to a six-month lock-in period.
Hollard International, SA’s largest privately-owned insurance group, has entered into an agreement to acquire a significant stake in Apollo Investments, the holding company APA Insurance which is headquartered in Kenya. Financial details of the deal were undisclosed. Hollard has an existing presence in the following African countries – Namibia, Mozambique, Zambia, Lesotho, Botswana and Ghana.
Kore Potash has announced the successful completion of a share subscription which has raised $2,5 million through the proposed issue of 542,250,000 new ordinary shares at a price of 0.38 pence. The funds, raised via a private placement, will for the most part be used to further advance work expected to lead to the delivery of an EOC contract for the Kola Potash Project announced in August.
The details of a proposed rights offer announced in February by Sable Exploration and Mining will now proceed with the offer of 52,213,608 shares at R1 per share. The offer will open on 13 November 2023.
Finbond is to go ahead with the proposed specific repurchase of 340,523,358 ordinary shares, representing c.38.55% of the total issued share capital as announced in August. The shares will be repurchased from Net1 Finance and Massachusetts Institute of Technology at 29.11 cents per share, representing a 19% discount to the 30-business-day VWAP on 9 August 2023.
Several listed companies reported repurchasing shares this week. They were:
Old Mutual announced in May it would commence with a share repurchase programme. The company has now confirmed that on October 16, 2023, it concluded the repurchase of 122,974,063 shares. The price at which the shares were repurchased, and the total amount paid were undisclosed other than to say that the company remained within the value specified in its announcement in May of R1,5 billion.
According to the Q3 results, Textainer repurchased 996,403 shares at an average price of $40.12 per share during the third quarter. The company has, however, suspended its share repurchase programme pending the transaction with Stonepeak announced last week. The deal is expected to close in the first quarter of 2024.
Prosus and Naspers continued with their open-ended share repurchase programmes. During the period 23 – 27 October 2023, a further 4,646,244 Prosus shares were repurchased for an aggregate €121,7 million and a further 304,926 Naspers shares for a total consideration of R891,95 million.
Glencore intends to complete its programme to repurchase the company’s ordinary shares on the open market for an aggregate value of $1,2 billion by February 2024. This week the company repurchased a further 9,830,000 shares for a total consideration of £43,5 million.
The JSE has advised that AH-Vest, Sasfin and Rex Trueform have failed to submit their annual reports within the four-month period as stipulated in the JSE’s Listings Requirements. If the companies fail to produce their annual reports on or before 30 November 2023, then their listing may be suspended.
The failure by Lux Holdings to remedy the various listing non-compliances since its suspension on 5 August 2022, has resulted in the removal of its listing from the JSE. The company listing will be removed from the commencement of business on 6 November 2023.
Following the fulfilment of the scheme conditions, the listing of Liberty Two Degrees will terminate at commencement of trade on 14 November 2023.
Six companies issued profit warnings this week: Sasfin, Renergen, enX, Astral Foods, aReit Prop and Pepkor.
Three companies issued or withdrew a cautionary notice: Astoria Investments, PSV and Tongaat Hulett.
AT Ghana (formerly AirtelTigo Ghana) has sign a joint venture agreement with UK private equity firm, Hannam Investments. Financial terms were not disclosed, but under the agreement, Hannam will, among other things, invest in state-of-the-art technology and infrastructure upgrades to create a leading 4G mobile telecommunications network.
Africa Finance Corporation (AFC) has sold its 35% stake in Atlantic Terminal Services (ATS) to Yilport Holdings. ATS is the concessionaire for the expansion of Ghana’s Takoradi Port. The transaction results in AFC exiting its equity investment, however it will remain a lender to the project. Financial terms of the exit were not disclosed.
Hollard International has acquired a significant interest in Apollo Investments, the holding company of Kenya’s APA Insurance. Financial terms were not disclosed. Hollard’s existing footprint in Africa covers South Africa, Namibia, Mozambique, Zambia, Lesotho, Botswana and Ghana.
ASX-listed Belararox has signed a non-binding term sheet with Chemopharm Limited to acquire the Solwezi East and Chantente exploration licences in the Zambian Copperbelt. The tenements consist of over 17,800 hectares in the Central African Copper belt. The purchase price consists of cash, shares and unlisted options. Upon completion of the deal, Chemopharm would hold a 7.49% stake in Belararox.
Ghanaian fintech, Zeepay Ghana, has secured a US$2 million equity investment from Injaro Investment Advisors. The inaugural investment by the Injaro Ghana Venture Capital Fund (IGVCF) forms part of Zeepay’s current Series A.5 funding round.
Chapel Hill Denham’s Nigeria Infrastructure Debt Fund has agreed to provide solar-based internet service provider, Tizeti Network, with an undisclosed long-term senior debt facility. Tizeti currently serves over three million subscribers in Nigeria. The debt funding will be utilised to build new internet infrastructure and purchase additional equipment to expand its services.
British International Investment has committed US$26,5 million to AFEX, a leading commodities platform. AFEX currently operates over 200 warehouses in Nigeria, Kenya and Uganda and serves over 450,000 farmers. The investment will be used to build 20 additional modern warehouses in the three countries.
African Development Bank has approved a US$196,43 million loan to Namibia to implement the second phase of its Transport Infrastructure Improvement Project. The loan will cover 51.8% of the total project cost, with the Namibian government covering the remaining 48.2%. The project consists of, among other things, 207 kms of new rail track using concrete railway sleepers and new rails, the construction of 16 bridges and renovations to two existing stations.
Global Ventures, the Bridge Fund (Proparco and Digital Africa), Wrightwood Investments (UK) and other international funds have invested in Egyptian healthtech, Almouneer. The seed funding, totalling US$3,6 million, will primarily support the development and expansion of DRU-MEA’s first patient-centric, digitally-enabled lifestyle and diabetes management platform.
My Easy Transfer, a Tunisian fintech, has raised €400,000 from 216 Capital. The fintech was started in 2022 and aims to evolve its platform to meet all the payment needs of the diaspora in a single mobile app.
Nico Katzke of Satrix is a familiar voice to Ghost Mail readers and podcast enthusiasts. He’s back on Ghost Stories, with a fantastic twist halfway through the podcast where we switched roles and he started asking me questions.
Nico in the hot seat:
Diversification vs. “diworsification” – a topic always worth revisiting, with commentary on the impact on the market as a whole and an understanding of correlation.
The danger of only seeing the highlights reel of an investment journey, masking the impact of taking risky bets that don’t work out.
The importance of humility in the market.
A famous quote by Warren Buffett that is misused all the time due to it being taken out of context.
Your favourite ghost in the hot seat:
My approach to managing cognitive bias.
The importance of objectively assessing growth opportunities against the valuation, even for the world’s most exciting companies and brands.
Long-term vs. short-term analysis and how this impacts the weighting of price vs. industry fundamentals and management.
Personal stories of “the stock that got away” (including the pain of CGT vs. income tax for an individual investor) and the stock that feels like “drunk dialling” an ex.
My pick in a Shoprite vs. Pick n Pay debate and how to use common sense when analysing stocks.
Where I sit on the value – growth spectrum and the importance of both fundamental and technical analysis.
The danger of action bias and the usefulness of higher interest rates that pay you to wait for the right opportunities, making “payday investing” very dangerous in single stocks.
The three stocks that I would choose to hold forever.
The way to start a journey in analysing companies and making single stock exposure decisions.
There’s so much in here, underpinned by Satrix’s commitment to South African investor education. To find out more about SatrixNOW, visit this link>>>
Listen to the show here:
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.
While every effort has been made to ensure the reasonableness and accuracy of the information contained in this podcast (“the information”), the FSP’s, its shareholders, subsidiaries, clients, agents, officers and employees do not make any representations or warranties regarding the accuracy or suitability of the information and shall not be held responsible and 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:
Attacq updates the market on debt levels after the GEPF deal (JSE: ATT)
The GEPF investment in Waterfall closed on 27 October
If you’ve been following Attacq, you’ll know that the sale of a 30% stake in Attacq Waterfall Investment Company to the GEPF at an attractive price has been a huge boost for the share price. Simply, the price paid for the portfolio was a much lower discount to NAV than the listed share was trading at. I’m pleased to say that I caught that jump in my own portfolio.
That transaction has now closed, with Attacq receiving R2.68 billion in cash. This was used to reduce debt, which is now at R6 billion vs. R8.4 billion as at 30 June 2023. This metric is calculated as drawn and committed facilities.
The change in debt profile has taken the weighted average loan term from 4.0 years to 2.7 years, with an average cost of debt of 9.9% vs. 10.3% as at 30 June 2023.
Europa Metals reports a large loss, but that’s normal in junior mining (JSE: EUZ)
The focus is always on progress with developing the resource
For Europa Metals, the year ended June 2023 was one of drilling campaigns and the execution of a farm-in arrangement with Denarius Metals Corp. This gives Denarius the right to acquire up to an 80% ownership stake in the Toral Project. This would leave Europa Metals with a 20% stake.
The first option is for a 51% stake with an initial exercise period of three years conditional upon certain operational milestones being achieved. The second option can be exercised for a year after the exercise date of the first option, with further other conditions.
Although this de-risks the project, it also shows how dilutionary junior mining is for early-stage shareholders. The difference here is that dilution is happening at project level rather than listed level. The end result is the same.
The current numbers aren’t the focus area, but for the sake of completeness I can report that the total comprehensive loss for the year was $3.38 million vs. $2.5 million in the comparable year.
Finbond moves ahead with a large repurchase from two shareholders (JSE: FGL)
This group is making sensible decisions
There are signs of capital allocation maturity at Finbond. For example, the company has walked away from the Trustco Finance Namibia acquisition. Although the massive specific repurchase of 38.55% of total shares outstanding from two shareholders isn’t hot off the press, this feels like a much better use of capital when the share price has taken such strain.
When you combine this with the green shoots in the US part of this business, Finbond is starting to make a case for itself as a highly speculative punt. The 52-week range is R0.24 to R0.55 and the current share price is R0.29.
The share repurchase from Net1 Finance Holdings (part of JSE-listed Lesaka Technologies – JSE: LSK) and the Massachusetts Institute of Technology (yes, the MIT – it’s a long story) is priced at R0.2911 per share. That’s in line with the current price, though it’s a 19% discount to the 30-day VWAP up to Wednesday 9th August when the pricing was agreed between the parties.
This repurchase will set Finbond back R99 million and will be funded from existing cash resources.
A circular will be sent to shareholders by 8 November. It will include an opinion by Merchantec as independent expert on whether the repurchase is fair and reasonable to other shareholders.
Just one quarter into the year, Jubilee feels good about full-year guidance (JSE: JBL)
It seems to be mainly good news in this update
For the quarter ended September, which is the first quarter of Jubilee’s financial year, things are looking decent for the company. It’s encouraging when full-year guidance is maintained after the end of the first quarter, as it suggests that things are going to plan.
Although there’s some pretty dicey maths in here, like a comment that production of chrome concentrate increased from Q4’23 to Q1’24 when it clearly decreased, the overall theme is an increase in production and flat or higher commodity prices vs. the preceding quarter. It’s interesting that they use Q4’23 as the comparison for metrics rather than Q1’23. So interesting, in fact, that they appear to have confused themselves in the process.
In terms of operational margin, copper is the juiciest fruit to squeeze with a 25.5% gross margin (way up from 19.5% in Q4’23). PGM is next at 15.2%, also higher than 12.3% in Q4’23. Chrome is the lowest margin at 12.7%, down from 13.5% in Q4’23.
The group is expanding the chrome operational footprint and is in discussions to conclude further life-of-mine partnerships in this space. In Zambia, they hope to replicate the success of the model used for chrome in South Africa, which focuses on securing metal-containing ore that has been deemed as waste by current or previous operators
There’s some pretty fancy technology in this group. I don’t pretend to understand any of it, but it certainly sounds impressive and they are winning contracts.
MTN Ghana is almost keeping up with in-country inflation (JSE: MTN)
But alas, “almost” isn’t good enough
For investors in MTN, the ongoing challenges at MTN Nigeria are an excellent reminder that business in Africa is risky. These economies can have great growth rates, but it doesn’t help if the currency collapses or inflation goes through the roof.
Exhibit A: MTN Ghana. Revenue is up 36.1% and EBITDA grew 32.6%, which sounds fantastic at first blush despite EBITDA margin dropping by 150 basis points to 56%. Sadly, inflation in the September quarter was 38.1% in Ghana, so this is negative real growth.
This makes sense in the context of mobile subscriber numbers falling by 9.3% thanks to the impact of SIM re-registration. Active data subscribers increased by 2.7% at least and Active Mobile Money users increased by 16.3%.
MTN Ghana is effectively just treading water operationally, with a 51.5% increase in net finance costs not doing the net profit story any favours.
MTN Ghana is 24.1% locally owned, with the rest held by MTN Group.
Octodec increases the dividend payout ratio (JSE: OCT)
This approach is becoming increasingly common in an effort to show distribution growth
Like most things right now, the property sector is taking a lot of strain. Distributable income is down at many funds, with inflationary pressures on operating costs and higher finance costs than before. Even though we’ve seen a decent post-pandemic recovery across most property types, there are now other reasons why things aren’t easy.
Most investors focus on the distribution per share, but you can’t view that in isolation. If the payout ratio has been increased, you can easily have a scenario where the distribution is higher but the income off which it is based has decreased. This is the case at Octodec, where distributable income per share has fallen from 175.1 cents to 171.2 cents for the year ended August 2023 and the dividend has increased from 130 cents to 135 cents per share.
The net asset value (NAV) has increased from R23.28 per share to R24.24. The current share price is around R9, so that tells you what the market thinks of the NAV. The current share price implies a yield of 15%. The yield would be ridiculously low if this fund actually traded at NAV, which is exactly why the market has little interest in that number.
In terms of prospects, Octodec anticipates between 3% and 5% growth in the distribution for the six months ending February 2024. If you read carefully, they expect flat distributable income per share. In other words, ongoing growth in the cash distribution remains a function of an increasing payout ratio.
Sibanye-Stillwater says yes to copper in Australia, plus there’s a local PGM deal with Amplats (JSE: SSW)
Finally, some positive news from the company– but not enough to move the dial
Sibanye-Stillwater is in the middle of a very painful labour process in its South African operations. The share price has been smashed this year as the price of Platinum Group Metals (PGMs) has dropped. Although the company is involved in other metals as well, that’s the bulk of the business.
Despite the pressure in PGMs, Sibanye is still open to deals in that space. A deal announced in January 2022 with Anglo American Platinum (JSE: AMP) has been brought forward, with Sibanye acquiring a 50% share in the Kroondal pool and share agreement and taking full ownership of the Kroondal operation. There are a number of complicated terms linked to the deal that have been amended as part of bringing it forward.
Both companies are happy with the transaction, which just shows how two groups can have different views on the same asset, often informed by the circumstances in the rest of their businesses.
Sibanye is also trying to build revenue streams in so-called future metals, with investment in metals like lithium. The latest announcement is a copper deal in Australia, so that’s another deal in something other than PGMs and gold.
It’s not a new opportunity, as Sibanye obtained the option to acquire the Mt Lyell copper mine as part of the deal for New Century Resources. Mt Lyell is a previously operated underground copper mine (with gold by-products) that operated from 1894 until it was put on care and maintenance in 2014. That’s quite a lifespan!
A feasibility study regarding re-establishment of the operation is underway. Sibanye must be feeling good about that study as the option to acquire the mine has now been exercised. It looks like the price is $10 million, with Sibanye giving loan funding to New Century Resources to execute the deal.
It’s nice to read something positive from the company, although it would take a change in fortunes in the PGM industry to start reversing the 49% drop in the share price this year.
Little Bites:
Aspen (JSE: APN) has announced that the acquisition of a portfolio of products in Latin America from Viatris (you surely recall the announcement about the rights to Viagra…) has now closed. In case any of these other names mean anything to you, the portfolio also includes commercialisation rights for Lipitor, Lyrica, Zoloft, Norvasc and Celebrex.
AH-Vest Limited (JSE: AHL) has joined the naughty corner of companies that are late with their annual reports. Others at the moment are Rex Trueform (JSE: RTO), African & Overseas Enterprises (JSE: AOO) and Sasfin (JSE: SFN), though these three companies have communicated with the market about the issue already.
Anglo American (JSE: AGL) announced that Stephen Pearce will step down as Finance Director and resign from the board. He’s been in the role since April 2017 and will remain with the group until the end of February 2024 to assist with the transition. It’s a pretty weird announcement, as they give absolutely no information about his replacement, John Heasley.
Visual International (JSE: VIS) has a market cap of just R8.2 million, which must be one of the lowest on the JSE. The property development company is making losses and has a negative asset value per share. Somehow, the accounts are still prepared on a going concern basis. Notwithstanding the rezoning of one of the properties and the impact this has on the balance sheet, it sounds more like an ongoing concern to me.
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