With the cosmic game of Jenga that global markets have been playing for the past three years, it’s reasonable to be rattled about investment instability.
Investors are finding it more difficult to spot attractive investment opportunities that will deliver secure, acceptable returns. Even the so-called equity ‘golden oldies’ no longer deliver consistently on investor expectations.
This prompts investors to question the overall viability of investments, but perhaps that line of questioning should be extended to investment strategies, and maybe even the way we assess investment options too. It’s probably time to rethink our existing investment perceptions and expectations and explore fresh ways to preserve capital, generate income and build wealth.
Traditional Thinking
Back in the day, portfolios were typically constructed by cherry-picking equities and bonds from the JSE and allocating them based on risk appetite, leaving investors to sit back and watch yields climb. Growth was the focus, and for the most part, stability lay simply in selecting a collection of traditional, albeit unimaginative, top performing assets, and ensuring they were stacked securely.
With little disruption to worry about, there was no compelling reason to look beyond the tried and trusted with few even thinking about alternative investment options. So, investors and their financial advisors continued to look forward to the annual portfolio review lunch, confident they’d be breaking out the good stuff.
But a new pattern had already started emerging by the time COVID-19 hit. It has since become undeniable and the corks have stopped popping. As conventional investment strategies failed to deliver the expected returns, the mutual backslapping quickly morphed into the Heimlich maneuver, and several critical shortcomings were revealed.
One, the misplaced belief that a Jenga tower built exclusively from the JSE’s top stocks and bonds could be an effective bulwark against market instability;
two, the reluctance to accept that a properly balanced portfolio should include a diversified range of investments beyond just the familiar; and,
three, the blinkers that resulted in many overlooking the potential of including alternative asset classes and fixed investments in balanced portfolios. Especially in rocky times.
Best of both worlds
Much like a real-life Jenga game, you need proper planning and a good mix of pieces in the right places. And much like with your investment portfolio, if you lean too heavily in any one direction, the slightest bump of the table will send the whole thing tumbling. It’s all about balance.
This approach has served Fedgroup well over the years by balancing innovation with a foundation of tried and tested financial wisdom to offer investors the best of both worlds.
With an unblemished track record of the performance of our fixed investments and a pioneering spirit, we’ve shown that it’s possible to constantly challenge industry norms for the benefit of investors. The result? Smooth investment journeys for investors and a consistent delivery on their financial security and growth objectives by incorporating innovative and competitive investment solutions into their portfolios.
How is this possible, you might ask?
Through a combination of fixed-term investments that could withstand a battering even when more traditional assets in investor portfolios might be reeling, providing a stable foundation, no matter the level of market volatility.
This approach to stability is rooted in the simple truth that, even the most aggressive investor, in the most bullish of markets, wants reassurance that a portion of their money is safe. And that’s truer still when the bears come out of hibernation, ready to deliver a COVID-sized klap.
This level of security is provided by fixed investments like our Secured Investment – and the more recently launched Fixed Endowment. They are perfectly positioned to offer investors certainty, from day one, of the exact returns they’ll receive at the end of the fixed term – making them great investment products regardless of whether you’re new to investing or an experienced, qualified investor.
Get the latest recap of JSE news in the Ghost Wrap podcast, brought to you by Mazars:
Farewell to the good times at Anglo American Platinum (JSE: AMS)
The PG in PGMs should stand for Parental Guidance required to read these sector results
As you will also see in the Northam numbers further down, the PGM sector is doing what it does best at the moment: blikseming people. Anglo American Platinum (or Amplats) has reported 2023 numbers and they reflect a 26% decrease in the rand basket price and a 1% drop in refined PGM production. Sales volumes only increased 2% as they dug into the refined stockpile.
You don’t need too much experience in the market to know what that combination looks like for the financials.
Revenue is down 24%, adjusted EBITDA has fallen 67% and HEPS has tanked by 71%. Despite this, mining EBITDA margin was still a rather lucrative 35% – it’s just come down a lot from 57% last year.
The dividend has followed suit, down 81% to R21.30 per share.
Along with initiatives to save costs and reduce capex, the group is embarking on a section 189 process that could impact 3,700 jobs. A review of contractors and vendors could impact 620 service providers.
Aveng reports in Aussie dollars for the first time (JSE: AEG)
This tells us a lot about the focus going forward
Aveng has released results for the six months to 31 December 2023. This is the first time that the reporting currency has been changed from the South African rand to the Australian dollar. Importantly, you also need to look at continuing operations as this excludes Trident Steel in the prior period.
Revenue from continuing operations increased from A$1.1 billion to A$1.5 billion. That’s a 39% increase on the top line of the income statement, driving a 99% improvement in operating earnings i.e. earnings nearly doubled.
McConnell Dowell is the key business, achieving operating earnings of A$24.2 million vs. just A$1.9 million at Moolmans. McConnell Dowell repaid A$10 million of debt in this period and has a remaining balance of A$13 million that the company expects to settle by the end of June 2024.
Moolmans is currently an exclusively South African business, with the group hoping to diversify the exposure going forward.
Current Group CEO Sean Flanagan will retire in March 2024, with McConnell Dowell CEO Scott Cummins set to take the group’s top job. He certainly inherits a group that is in much better shape than before, with work in hand covering 100% of 2024 full year revenue and more than 60% of 2025 revenue. Of course, what really matters is how well the projects are delivered in terms of margins, which are usually very tight and have the potential to easily go into the negative if things aren’t managed properly.
For now at least, HEPS of A$8.8 cents (R1.06) for the interim period is a solid improvement. The share price closed 6% lower at R7.28.
4Sight more than doubles HEPS (JSE: 4SI)
Plus, there’s a dividend!
4Sight has been getting the JSE small cap enthusiasts excited and with good reason:
Has there ever been a more aptly named company, as you wish you had the foresight to see what would happen here?
The driver of the increase has been revenue growth of 34.9% in the year ended December 2023 that has powered a 70.6% increase in operating profit and a 127.8% jump in HEPS. Importantly, there’s now a dividend of 2.5 cents per share based on HEPS of 5.42 cents.
What does the company do? Well, the magic words “Artificial Intelligence” are involved and that always gets the crowd jumping, especially in South Africa where our exposure to the 4th Industrial Revolution is generally limited to the lights coming back on after load shedding.
Italtile: a casualty of this economy (JSE: ITE)
Much like at Cashbuild, there really isn’t much that they can do
Italtile is another great barometer for the state of our economy. Spoiler alert: the operating environment isn’t nearly as pretty as the fancy tiles.
System-wide turnover is down 2%, trading profit has fallen by 17% and HEPS has taken a 15% knock. The dividend has largely followed suit, down 16%.
The outlook doesn’t paint an appealing picture either, noting that consumers are likely to remain under pressure and that the business will find things difficult until interest rates decline and consumer confidence is restored.
One of the reasons why Italtile struggles is that there is a substantial manufacturing element to the business. When capacity utilisation moves in the wrong way due to weak demand, manufacturing businesses take a significant knock to their margins.
As another reminder of what we are dealing with in this economy, Italtile Retail (which focuses on higher income consumers) noted that the size of its market has declined over recent years, in line with “sustained emigration” – exactly what a business like this doesn’t need to see. It’s not much better in the mid-market either, with CTM’s sales and profits down mid-single digits. Yet, in the entry-level market, the TopT brand achieved low single-digit growth in sales and profits.
In summary, South African consumers who are coming through the income ranks at a lower level seem to be a source of growth. As for the rest of the income brackets, people are either emigrating or maintaining a flexible enough asset base that emigration is an option.
The PGM basket price hammered Northam Platinum (JSE: NPH)
In the latest news from the PGM jungle, HEPS at Northam has all but collapsed
The PGM sector has a reputation for hurting people. With a 42.3% decrease in the 4E basket price for the six months to December 2023, Northam Platinum is the latest casualty. Even a 10.4% increase in sales volumes does little to offset this pain.
It also doesn’t help when mining costs are subject to inflationary pressures, with a 6.7% increase in group unit cash cost per equivalent refined 4E oz despite the increase in production. When combined with what happened to PGM prices, the result is a 73.3% decrease in gross profit.
From there, it’s hard for the income statement to be anything other than hideous. And indeed, HEPS is expected to be between 87.5% and 97.5% lower.
The silver lining here must be the balance sheet, with net debt improving to R2.4 billion at the end of December. The rolling 12-month net debt to EBITDA ratio is 0.24x. Cash and cash equivalents were R11.8 billion and the company has access to undrawn facilities of R11.0 billion.
Included in earnings per share (not HEPS) is a R799.7 million loss on the disposal of Impala Platinum shares that were received as consideration for the disposal of Royal Bafokeng Platinum. You may recall that Northam Platinum was in a bidding war for Royal Bafokeng, before pulling out and letting Impala win that battle as PGM prices kept falling.
It’s concerning that based on the price achieved in this period, only the Booysendal mine actually made a profit. Zondereinde and Eland both lost money per ounce sold.
In an environment of depressed PGM prices, the group has trimmed back its capex plans, investing R2.4 billion in this period vs. R2.6 billion in the comparable period. R1.6 billion of that capex was expansionary spend.
Telkom manages a flat EBITDA performance (JSE: TKG)
At least Swiftnet is putting in decent numbers at just the right time
Telkom released a trading update for the third quarter that reflects revenue growth of 2% and stable group EBITDA. It’s not growing, but it’s not shrinking either. EBITDA margin contracted to 21.9%, impacted by BCX (EBITDA fell by 27%) and pressure on enterprise customers.
There were some highlights, like Telkom Consumer and Openserve growing operating earnings by 20.6% and 7.0% respectively. This was driven by metrics like Telkom Mobile subscribers growing by 6.4% (and data revenue up by 11.5%), as well as data revenue at Openserve increasing by 6.2% as the number of connected homes increased by 20.8%. Yes, it would be nice to see revenue at Openserve increasing at a rate in line with the number of connected homes. The bigger challenge at Openserve is the decline in total fixed voice revenue in the legacy side of the business, leading to overall revenue declining by 3.1%.
Swiftnet is thankfully doing well at the right time, as Telkom seems to be getting closer to a potential deal to dispose of the business. The bidder consortium is working towards meeting agreed milestones under the exclusivity arrangement. The company hopes to be able to make a more detailed announcement soon. Having said that, there’s still no guarantee at all that the parties will agree commercial terms or that a deal will go ahead. In the meantime, total revenue grew 4.7% at Swiftnet and EBITDA was up 11.3% as tower operating costs fell
Transpaco’s margin goes the wrong way (JSE: TPC)
And so did the share price
Transpaco has a market cap of under R1 billion, so it falls into that area of the JSE that is about as liquid as the dunes of Dubai. The share price fell 13.18% yesterday, which sounds spectacular at first blush, yet that can easily be the bid-offer spread when it comes to small caps.
It wouldn’t have helped that revenue for the six months to December 2023 fell by 4.5% and operating profit fell 12.3%. This is a classic case of operating leverage working against a manufacturing group. Operating margin contracted from 10.0% to 9.2%. HEPS was 5.6% lower at 299.1 cents and the dividend was 5.9% lower at 90.0 cents.
The usual suspects are blamed for the results (load shedding / the economy / interest rates), with the company commenting that share buybacks helped to cushion the blow. With HEPS falling by a significantly lower percentage than operating profit, you can see how having fewer shares in issue helped.
The Plastics division suffered most, with revenue down 10.1% vs. a 2.6% drop in the Paper and Board division.
Vukile taps the market for capital (JSE: VKE)
The group is looking at opportunities in both its markets of operation
Vukile has proven to be one of the better REITs of the post-pandemic era, so the company is doing exactly what it should be doing while sentiment is good: raising capital from investors. You always want to raise when you have the gold star on your forehead and you sit at the front of the class. Raising from the naughty corner ain’t easy.
The group has a portfolio in South Africa and Spain and is looking at a pipeline of opportunities in both markets. This is a cheeky capital raise, as the company is so confident of its abilities to raise the capital that details on the opportunities haven’t been given. Instead, the proceeds of the bookbuild will be used to temporarily reduce borrowings ahead of doing deals.
The extent of the raise? Approximately 5% of the company’s market cap, which implies over R750m in fresh capital.
Keep a close eye on what they do with the money. We really don’t have to dig very far back in the history books to a time when REITs raised billions in the time it takes you to drink your coffee, before deploying the money into overpriced properties.
Little Bites:
Director dealings:
An executive member of the board of Richemont (JSE: CFR) has shown us what real money looks like, with a disposal of shares worth R47 million.
Sean Riskowitz, acting through Protea Asset Management as usual, has bought another R754k worth of shares in Finbond (JSE: FGL).
The same director of Afine Investments (JSE: ANI) who executed an odd buy and sell trade the other day has now sold shares worth R48.5k, also at R5 per share.
Directors of Nictus (JSE: NCS) bought shares worth R15.6k in an off-market trade.
In a trading statement for the six months to March 2024 that isn’t nearly as useful as a trading statement usually is, Life Healthcare (JSE: LHC) noted that EPS will be at least 20% higher. This is thanks to the gain on disposal of Alliance Medical Group. Such a gain is excluded from HEPS and there are still weeks of trading left, so the group hasn’t commented on HEPS. In other words, as trading statements go, this is an anomaly that was required to meet JSE rules. It doesn’t tell us anything at all about core operating performance.
Copper 360 (JSE: CPR) has raised just under R100 million through the issue of shares for cash. It looks like there’s a buyback option linked to this raise to potentially limit dilution to existing shareholders. In total, the company has raised R374 million through various debt and equity issuances.
African Equity Empowerment Investments (JSE: AEE) announced that a fraud in November 2023 of $820k has led to the CEO of Premier Fishing and Brands being found guilty of negligence (not the theft itself). Efforts to recover the misappropriated funds are ongoing.
Watching a blockbuster film in a full cinema is arguably one of life’s finest experiences – and certainly one worth preserving. But will cinemas as we know them be able to keep up in the streaming race – or will they have to change their use case entirely?
The fourth quarter of 2023 was Netflix’s most explosive period for subscriber growth since Q1 2020. In case these dates are too vague for you, let me colour in the picture a little better: the last time Netflix saw numbers better than the ones they just released, a global pandemic had just forced the entire world indoors with nothing better to do than to watch TV. I stand to be corrected, but I think the only companies who had anywhere near the same levels of success as Netflix during the pandemic were those who were making either vaccines or video meeting platforms.
While Netflix has certainly been minting it lately (even their crackdown on password sharing, which many users criticised as draconian, has ultimately resulted in an uptick in new paying subscribers), the same can’t be said for the big screen. The cinema business has been haemorrhaging for a good long while now, with COVID-19 striking what many thought might be the deathblow. Fortunately, major movie houses have managed to hang on by their fingernails – but for how much longer will this continue?
As a self-proclaimed cinephile, the thought of a future without the opportunity to see a film on a big screen with a tub of overly-salted popcorn on my lap is too bleak to even entertain. What will it take to save our cinemas?
From silver screen to couch stream
It took a long while for humanity to progress from being able to create simple moving pictures to screening 2-hour-long blockbusters on IMAX screens. I won’t bore you with the full history – instead, I’d like to tell you about cinema’s golden age.
The 1930s and 40s represent the peak of cinema attendance. There are many reasons for this, but two stand out as major contributors. Firstly, this was the time when most films featured both colour and sound, thereby offering a vastly improved viewing experience to the silent black-and-white films that came before. And secondly, this was the time when cinema was considered the principal form of popular entertainment.
Going to the movies was so popular at the time that most people would attend the cinema as often as twice a week. As is always the case in business, demand drives supply, and in this case, the public’s demand for movies led to the building of ornate “supercinemas”, also known as picture palaces, in major cities and large towns. I’m not talking about the kind of in-mall cinemas that we’re used to seeing nowadays – these picture palaces were standalone buildings, large enough to fit multiple screening rooms, as well as cafés and ballrooms, all under one roof. Some of these supercinemas were large enough to accommodate up to 3,000 viewers in front of one screen.
Fast forward about 8 decades into the future, and North American box office revenues peaked in 2018 at $11.9 billion, followed by a slight decline to $11.4 billion in 2019, as reported by Comscore. Numbers have only continued to decline since then. In 2020, the onset of COVID-19 led to a drastic 80% drop in domestic box office earnings, plummeting to just $2.3 billion. Remarkably, $1.8 billion of that total was generated in the first three months of the year, before the pandemic fully disrupted normal life.
Keep in mind that the pandemic threw a wrench into both the making and showing of films, stashing away movies for extended periods while keeping audiences away from theatres. However, besides the direct disruptions caused by the pandemic, North America still faces the problem of having an excess of movie screens, which makes it difficult to get theatres to capacity. Moreover, the array of choices for streaming films at home has expanded, with new releases arriving much sooner than they did previously. Suddenly, staying home and streaming a movie on the couch is as appealing an option as a night out at the movies – and at a much lower cost.
There’s nothing like a full house
I absolutely love the feeling of being in a full cinema. For me, that’s where the magic of the movies always came from – that feeling of experiencing something as part of a crowd. Sure, you might feel something similar in a sports stadium or at a concert, but there’s just something about a group of people leaving reality behind for a couple of hours and stepping into an alternative world together that keeps me coming back for more.
I’ll never forget the experience I had while watching a horror film in a Cape Town cinema years ago, when a particularly nasty jump scare prompted a gentleman in the row in front of me to exclaim “djy!” at full volume. I remember the collective gasp in a full cinema during the screening of one of the latest Star Wars films, when fans of the franchise saw the Millennium Falcon on the big screen for the first time since 1983. And of course, there was no other way that I was going to see the atomic epic Oppenheimer than on the biggest, loudest IMAX screen I could find. Mankind’s biggest bomb just doesn’t resonate as well on a TV.
Usually when I write these articles, I try to find something that we can all learn from some clever business strategy or founder’s innovation. Today, I’m just writing to make a case for a business that I believe deserves to continue existing. And I’m not alone in this line of thinking either. When cinemas in North America closed their doors during the COVID-19 pandemic, award-winning director Christopher Nolan said “When this crisis passes, the need for collective human engagement, the need to live and love and laugh and cry together, will be more powerful than ever. We need what movies can offer us.”
Now, you might call him a bit biassed, based on his career choice. I prefer to think of him as simply a fellow film enthusiast.
“Pivot!”
So, I believe we can collectively agree that movie theatres are cool and that we’d like them to stick around for the foreseeable future. But to survive the next few decades, cinemas will have to pivot in new directions in order to differentiate themselves from their streaming competition. It’s not just about screening exciting films anymore – while Barbie and Oppenheimer have shown us that hype will still drive turnout in record numbers, a feast-and-famine income model is simply not a sustainable strategy.
Herewith my 2c: a collection of suggestions that may or may not save our cinemas, some of which are already being tried out there.
Pivot 1: Up the experience
If you’re asking an audience member to leave their home in order to see a film that they could just as easily view on their couch (in a few weeks’ time), then you need to make the experience of being out of the house worth their while. An average seat and standard snacks are easy to replicate at home. But change that to a plush reclining seat and gourmet snacks – potentially even alcoholic drinks and a menu of delicacies that can be served in-cinema – and the offering becomes that much more appealing.
Pivot 2: Bring back the classics
When the original Jurassic Park was showing audiences the magic of computer generated dinosaurs for the first time in 1993, I was less than a year old – not exactly the ideal movie-going age. I also completely missed my opportunity to see such classics as Jaws, the original Star Wars trilogy, Gladiator and The Matrix on the big screen – which is why I’d be willing to pay big bucks if that chance came around again. With the recent focus on reinventing older movie franchises like Indiana Jones, Jurassic Park and Top Gun, I believe movie theatres could benefit from offering a re-screening of the original films that inspired the new releases. This isn’t as far fetched an idea as it might seem if you consider that it was already done by the Avatar franchise, which re-screened the original Avatar movie (2009) in tandem with the release of Avatar 2: The Way of Water (2022).
Pivot 3: Rent out the screen
If you tilt your head and squint at it, a movie theatre is really just a potential venue-for-hire that includes a great sound system and a really big screen. Renting a theatre can make for a unique and memorable experience for events like birthdays, anniversaries, proposals, or even just a special date night. Businesses may rent out theatres for team-building events, product launches, or employee appreciation events. Schools or educational institutions may rent theatres for special screenings tied to their curriculum or to reward students for achievements. And lastly, with the rise of esports and gaming culture, some individuals or organisations may rent theatres for gaming tournaments or to host video game release parties.
Just bring back the audiences now
In the age of streaming dominance, the allure of the big screen seems to wane, yet the essence of the cinema experience remains irreplaceable. As we reminisce on the golden age of cinema and ponder its uncertain future, one thing becomes clear: the magic of movies lies not just in the narrative unfolding on screen, but in the collective engagement of a captivated audience.
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.
Get the latest recap of JSE news in the Ghost Wrap podcast, brought to you by Mazars:
At Cognition, the balance sheet is what counts (JSE: CGN)
The gap between HEPS and NAV per share confirms it
After the sale of Private Property for a tremendous price, Cognition is now a group that is highly pregnant with cash. The group generated HEPS of just 2.48 cents for the six months to December 2023, yet the tangible NAV per share is 103.85 cents. That’s a huge difference, explained by R207 million worth of cash on the balance sheet vs. liabilities of just R28.2 million.
Cognition is currently in discussions with controlling shareholder Caxton & CTP Publishers and Printers (JSE: CAT), which may lead to an offer to delist Cognition.
The share price is currently trading at R1.05, which is already in line with the tangible NAV per share. It’s not obvious to me why Caxton would pay a significant premium to this price.
More insult and injury for Delta Property Fund (JSE: DLT)
It’s very debatable whether a fine a few years down the line actually punishes the right people
Delta Property Fund is another great local example of a company that turned into a financial disaster. The problems started with an announcement in 2020 dealing with problems in the financials. This would turn out to impact the 2018 and 2019 numbers as well.
The company initiated forensic investigations in 2020 that found a host of problems. To Delta’s credit, the JSE acknowledges that the company was transparent in dealing with the issues.
Still, there has to be some kind of punishment for not complying with IFRS, although share prices tend to dish out their own punishment when it comes to these things. The JSE has publicly censured Delta and imposed the maximum fine of R7.5 million, of which R5 million is suspended for a period of five years provided no other listings requirements are breached as they pertain to financial performance.
Far more importantly, the investigation into the individuals involved (rather than the company) is ongoing. It feels like that’s a much better way to punish the right people, rather than putting even more pressure on the company’s balance sheet and causing more damage to minority shareholders.
Transaction Capital releases the WeBuyCars unbundling circular (JSE: TCP)
Perhaps more importantly, there’s also a WeBuyCars management presentation to work through
In around April 2024 (and how I wish the Transaction Capital share price was just an April Fool’s Day joke), WeBuyCars will be separately listed on the JSE if all the conditions along the way are met. This is exciting stuff, particularly as our local universe of stocks tends to shrink a lot faster than it expands. WeBuyCars is that rare beast on the market: a pure-play view on a business model. They focus on doing one thing and doing it well.
It’s quite incredible to consider the history of WeBuyCars. It was started in 2001 and took another nine years until the first car supermarket was built in Pretoria with capacity for 100 vehicles. Fast forward to 2024 and they sold 14k vehicles just in January.
The company consistently reminds investors that Motus and CMH are not directly comparable, as WeBuyCars only sells used cars. There’s no noise from a rental business, or new car sales, or after-market parts. In fact, the strategy to expand the existing product offering is at this stage focused only on finance and insurance penetration, which means a higher value per customer. They are looking to make the value-added margin in addition to the gross margin on a sale. That’s a solid organic growth strategy, rather than a foray into something new or unrelated.
The group is looking to add at least 2,000 bays in FY25 to FY26, reaching regions of South Africa that aren’t currently serviced by sales outlets. They will need to be careful here that they don’t build supermarkets in areas that can’t support them.
Fascinatingly, they expect market share to grow from the existing 10% – 12% up to 23% by FY28. That’s a very bold chart to put in an investor deck! In theory, there’s no reason why they can’t achieve this.
FY23 was a wobbly in terms of the profit growth story. If you understand what happened to used vehicle prices over this period, then you’ll also understand why this chart (1) accelerated in FY21 and FY22 and (2) fell off in FY23:
For me, where the economic reality does bite WeBuyCars is on the inventory days calculation. This is simply how many days worth of sales they have in inventory at any point in time. This has increased from 24 days to 30 days in the past two years, which is a material negative impact on working capital:
On the whole, in case it isn’t obvious, I’m bullish on WeBuyCars. This is exactly why I took exposure on Transaction Capital when they did the deal. Sadly, as you will no doubt be aware, the problems at SA Taxi blew up the Transaction Capital share price and I took that knock. At least the end result is direct exposure to WeBuyCars and some hope of an outcome for the “rump” of Transaction Capital, even if that might be a take-private of SA Taxi and Nutun. That is 100% speculation from my side, so please treat it as such. It just seems to make sense, as that rump will very much be the ugly duckling after the unbundling of this swan.
As a reminder, the structure of the unbundling and related capital raising activities will see Transaction Capital unlock between R900 million and R1.25 billion in cash. This will do wonders for the balance sheet. When you look through all the complex steps in the process, the equity value of WeBuyCars has been set at R7.5 billion.
The one hangover of this structure that I’m not a fan of is that Gomo (a finance and insurance business) will still be in Transaction Capital even though it services WeBuyCars in addition to SA Taxi. I’m sure everything is arms’ length and goodness knows a service provider doesn’t always need to be in the same group as the company it services, but it does mean there is still a legacy link to what is being left behind in Transaction Capital.
The WeBuyCars pre-listing statement is due for release on 12th March. That’s the day after my birthday and I’ll assume this is my gift from Transaction Capital.
Little Bites:
Director dealings:
The CFO of Nampak (JSE: NPK) has acquired shares worth R4 million.
In one of the strangest director dealings I’ve seen, a director of Afine Investments (JSE: ANI) bought shares worth R655k and then sold R606k worth of shares on the very same day at the same price per share. Then, a day later, he bought shares worth R1.85 million.
An associate of a director of Huge Group (JSE: HUG) has bought shares worth nearly R33k.
For those of you who like to keep track of the cost of debt for corporates, British American Tobacco (JSE: BTI) has priced notes due in 2031 at 5.834% and notes due in 2034 at 6.000%. The total issuance is a meaty $1.7 billion.
As indicated by the company earlier in the week, André van der Veen has officially replaced Peter Surgey as chairman of Nampak (JSE: NPK).
In a rather funny update that calls into question whether an investment strategy can also include a preference for similarity of names, an international investment house called Hosking Partners LLP has increased its interest in Hosken Consolidated Investments (JSE: HCI) to 5.05%.
Anglo American Platinum (JSE: AMS) announced that the Mototolo and Amandelbult mines are the first PGM mines to South Africa to complete an IRMA audit, achieving the IRMA 75 and IRMA 50 levels respectively. Whilst this doesn’t exactly do anything about the PGM prices, it does help with fussier buyers who track their supply chain and it helps keep Amplats on the right side of investors with an ESG slant to their mandates.
Get the latest recap of JSE news in the Ghost Wrap podcast, brought to you by Mazars:
A big jump in earnings at Aveng (JSE: AEG)
And a change in reporting currency
Aveng now earns 91% of its revenue from outside South Africa. To this end, the company is changing its reporting currency to the Australian dollar, reflecting the true economic situation of the group.
For the six months to 31 December 2023, Aveng’s revenue is expected to be 45% higher and earnings are up at both McConnell Dowell and Moolmans. Due to the disposal of Trident Steel in this period, HEPS from continuing operations is the right metric to focus on. It came in between 65.4% and 75.0% higher.
Local mining conditions hurt Barloworld (JSE: BAW)
The slowdown in South African mining is worrying
In the four months to 31 January 2024, Barloworld saw a 5% reduction in group revenue. The company has attributed this to lower demand in mining and consumer industries, with continued geopolitical conflicts not doing any favours.
With commodity prices having come under pressure and South African infrastructure doing a very poor job of supporting local mines, there was a slowdown in mining activity that saw Equipment southern Africa’s revenue decrease by 2%. After-sales activity was up, but at lower gross margins, leading to a dip in margin due to the mix effect. If there’s a silver lining here, it’s the decrease in levels of inventory. Also, the Bartrac joint venture in the DRC is showing an increase in attributable profits.
Equipment Eurasia has been supported by 20% revenue growth in Barloworld Mongolia, attributed to strong mining activity. The Russian business saw revenue drop by 26%, so that offset the overall story. At least both businesses achieved good operating margins.
In Consumer Industries, Ingrain’s revenue fell 5% due to lower demand in the alcoholic beverages, papermaking and converting sectors. Export sales fell due to competitive global pricing of starch. The impact of lower sales is that operating margins have fallen as well, as there are fixed costs. A restructure is underway to reduce fixed expenses.
More bad news in the nickel mining industry (JSE: BHP)
BHP is impairing Western Australia Nickel
BHP has announced two “exceptional items” for the financials for the six months to December 2023. This doesn’t mean exceptionally good, before you get excited.
The first is an impairment of the Western Australia Nickel operations of $3.5 billion pre-tax. Conditions in the nickel industry are really difficult at the moment (remember Glencore is also shutting an operation in this space) and BHP is reducing costs at the mine. The problem is the supply of nickel from Indonesia, which has significantly increased. This has lowered the nickel price at a time when mining costs are still under inflationary pressure.
There’s another impairment as well, but it has nothing to do with nickel. BHP is taking another pre-tax charge of $3.1 billion in relation to the Samarco dam failure, taking the total provision to $6.5 billion. This is based on an updated view of the costs after recent legal developments. Importantly, there is still significant uncertainty over what the final cost of this might be.
As usual, nothing is simple at Blue Label Telecoms (JSE: BLU)
You have to read the trading statement very carefully
Blue Label Telecoms has released a trading statement for the six months ended November 2023 and you have to be very sure of what you are looking at. For example, if you don’t take into account the huge negative move in the comparative period from the recapitalisation of Cell C, you would think that core HEPS is over 10x higher year-on-year. If you take out the current and prior period impacts of that recapitalisation, then HEPS is actually down 23%.
Then, it’s worth highlighting that the trouble in adjusted HEPS was from Comm Equipment Company (CEC), which saw headline earnings drop by R119 million. The rest of the group grew headline earnings by R19 million (10% growth). The problems at CEC are a drop in gross profit and substantial increases in expected credit losses, driven by a larger subscriber base and a deteriorating macroeconomic backdrop in South Africa.
There was a buzz around Blue Label Telecoms on Twitter/X in the latter part of 2023. The share price has rolled over since then, with the only real money being made on the rally from September to December. Over almost every time period, Blue Label investors have lost money.
The reward for foresight into 4Sight (JSE: 4SI)
The share price has approximately doubled just in 2024!
4Sight has a market cap of under R600 million. This is firmly small cap territory. It’s bigger than it was though, with an increase of a ridiculous 360% in the past 12 months! This year alone, the share price has roughly doubled. Welcome to Camp Small Cap and the rollercoaster ride.
To give support to this move, a trading statement for the year ended December 2023 reveals HEPS growth of 120.4% to 135.2%.
KAP’s earnings take a klap – again (JSE: KAP)
The good news (I guess) is the base period is better than everyone thought
Further to the trading statement in December that gave the bare minimum disclosure (a decrease in earnings of at least 20%), KAP has now issued a further trading statement that shows a drop in HEPS of between 25% and 36% vs. the comparable period as published.
This distinction is important, as the base period earnings are being restated to allow for Safripol recovering R183 million from a supplier that had overcharged the company. The good news is that the R183 million was recovered, thereby increasing HEPS for the base period by 2.8 cents. The bad news is that this makes the year-on-year decrease even worse: a range of -31% to -41%.
At least debt is lower than a year ago and a revolving credit facility of R3 billion has been raised to refinance upcoming debt maturities. With a HEPS range of 19.8 cents to 23.3 cents, the group is still profitable despite all the strain at Safripol.
MC Mining’s independent board does not approve of the takeover bid (JSE: MCZ)
Or, as per Aussie takeover law, a resounding DO NOT ACCEPT all in capital letters
Things always get very interesting when independent boards play hardball with a potential acquirer. It is their role to make a recommendation to shareholders regarding whether an offer is fair. MC Mining’s board isn’t impressed with the bid by Goldway Capital for A$0.16 per share, calling it opportunistic and lacking an appropriate premium for control of the company. Simply, they believe the offer should be higher.
The board also notes that the bidders would need to hold at least 82.19% of shares in issue based on acceptances in order for the bid to become unconditional. This is because holders of at least 50.1% of the shares not held by the joint bidders must accept the offer based on the conditions imposed by the bidder.
Lots of narrative at Nampak – but no numbers (JSE: NPK)
It seems like things are moving in the right direction
Nampak is a turnaround story that I really struggle to get excited about. The company faces an incredible array of headwinds, making it very difficult to achieve meaningful returns for investors.
An update for the three months to December 2023 gave the market some important nuggets of information, like the news that operating profit has improved and net debt levels are down. Importantly, the divestiture plan is proceeding in line with previous guidance.
The South African business is on the wrong end of consumer pressures, although this does vary depending where in the group you look. For example, a good crop in the fruit season helped with the canned fruit business. The plastic and paper businesses have a less encouraging story to tell.
As is usually the case, currency issues in Nigeria and Angola continue to cause problems. At least demand is higher in Angola for cans, which is more than Nigeria can say.
The labour costs across the group are still a problem. Discussions with unions are in progress to limit increases. Although the company doesn’t say so in this announcement, one can reliably assume that unsuccessful negotiations could lead to job losses.
Concerningly, it seems as though working capital seasonality had a negative impact on cash generated from operations. This is expected to normalise by the end of March and it’s important that it does. The group must reduce debt by R243 million by the end of March and is on track to do so, with R180 million already done from the proceeds on disposal of the Nampak Nigeria Metals property and the UK apartment.
Yes, an apartment in the UK. You read that correctly.
With the existing chairman stepping down at the AGM, the board resolved to appoint Andre van der Veen to the chairman role.
Another hiccup at Renergen (JSE: REN)
Compressors have let the company down
The good news at Renergen is that LNG deliveries have recommenced after the maintenance outage.
The bad news is that there are yet more issues in the helium side of the business (which is what people care about). This time, the blame is being put on primary mixed refrigerant compressors, supplied by a Swiss group and assembled in China. The new part is expected to be delivered after Chinese New Year celebrations. Although Renergen may have a claim from insurance or against the supplier for the problem, it does once more raise questions around when the helium production will start.
The market continues to wait, with the share price having halved in the past 12 months.
Is mining cyclical? Just ask South32 (JSE: S32)
The dividend has all but disappeared
My dad ensured that I received a healthy dose of Led Zeppelin in my teenage years. I’m glad that happened, because I love the band today. They have a song called Good Times Bad Times and it’s a good thing to keep in mind when investing in mining.
For the six months to December 2023, South32’s revenue fell by 15% and the ordinary dividend has collapsed by 92%. Do not, ever, buy mining houses based on trailing dividend yield. You will frequently get hurt. The forward dividend yield is the right metric.
The reason for the drop in dividend is that diluted HEPS has also been smashed, down from 12.6 US cents to 1.2 US cents.
The reason for the drop? Well, despite record aluminium production, commodity prices went in the wrong direction and metallurgical coal volumes were lower. The show must go on of course, so the company has announced a $2.16 billion investment in the Taylor zinc-lead-silver deposit in Arizona (no relation to Swift) despite the drop in earnings. Production is only expected in H2 of FY27, which is a good reminder of the length of the planning cycle in mining.
Return on Invested Capital (ROIC) has plummeted from 12% to 1.3% and South32 will certainly be hoping for some improvement in commodity prices. The company expects a 7% production uplift in the second half of the year and will be driving cost efficiencies in the business, but mining houses can only do so much if commodity prices remain depressed.
Little Bites:
Director dealings:
Sean Riskowitz, acting as usual through Protea Asset Management, has bought yet more shares in Finbond (JSE: FGL), this time worth R755k.
Philip Kotze, who is a representative of Clover Alloys, has agreed to step down from the Orion Minerals (JSE: ORN) board to avoid potential conflicts of interest that would arise from discussions around funding and other opportunities with multiple parties (including Clover).
Over the past two decades, South Africa’s merger and acquisition (M&A) activity has all but halved, influenced by various factors, including regulatory changes, concerns over political stability, and local and global economic conditions, all of which have dampened investor confidence and slowed dealmaking momentum. This, is, of course, bar the blip in 2021, following the release of the bottleneck caused by the 2020 pandemic.
In 2023, total deal activity by SA-listed companies declined to 315 deals, valued at c.R576bn and that compares with 383 deals valued at R735bn in 2022. Of this 2023 total value, 64% of the deals were announced by foreign companies with secondary listings on the JSE.
Delving deeper into the numbers, the value of the 284 deals announced by SA domiciled companies in 2023 declined 44% against that of 2022 and this, despite the effect on the numbers of a weaker exchange rate. On a positive note, the number of failed deals dropped to six, against a norm of roughly 24.
Of the top 10 largest 2023 deals (by value) by a primary listed SA company, Life Healthcare’s disposal of Alliance Medical Group to entities advised by iCON Infrastructure tops the list at R19,7bn. The largest B-BBEE deal by value was Absa’s eKhaya transaction at R11,2bn. Both deals won their respective categories at the ANSARADA DealMakers Awards.
The standout theme of the general corporate finance tables, the rubric representing corporate restructurings, listings, share issues, unbundlings among others, was the return of value to shareholders by way of share buy-back programmes, special cash distributions and the secondary listing of companies on A2X providing investors with the cost-effective trading of listed shares.
The winners of the platinum medal subjective awards are as follows:
Ince Individual DealMaker of the Year – Ferdi Vorster
(L-R) Arie Maree (Ansarada), Ferdi Vorster and Laban Nyachikanda (Ince).
Brunswick Deal of the Year – Life Healthcare’s disposal of Alliance Medical Group
Life HealthCare’s disposal of Alliance Medical Group took home the Brunswick Deal of the Year award. Advising on the deal were Goldman Sachs, Barclays Bank, Rand Merchant Bank, Standard Bank, Werksmans, Webber Wentzel, Deloitte and BDO.
Exxaro BEE Deal of the Year – ABSA’s eKhaya transaction
(L-R) Arrie Maree (Ansarada) Molefi Nthoba and Jan-Hendrik du Plessis (Absa), Ling-Ling Mothapo (Exxaro), Mark Antoncich and Jason Janse van Vuuren (Absa)
Catalyst Private Equity Deal of the Year – Carlyle’s exit of Tessara
L-R Jaco Smit (Tessara), Michael Avery (Catalyst), Bruce Steen (Carlyle) and DJ Schreuder (Tessara)
Business Rescue Transaction of the Year – Cast Products South Africa
L-R: Arie Maree (Ansarada), Johan du Toit (Engaged Business Turnaround), Refilwe Ndlovu (Chrisyd Advisory Services) and Marylou Greig (DealMakers).
Special Recognition Award – African Parks
Accepting the award on behalf African Parks from Marylou Greig (DealMakers) is Yushanta Rungasammy and Sihle Bulose (CMS South Africa).
2023 M&A award winners (listed companies)
The category of Investment Adviser (by deal value) was won by Rand Merchant Bank. (L-R) Arie Marie (Ansarada), Krishna Nagar and Irshaad Paruk (RMB) and Marylou Greig (DealMakers).The category of Investment Adviser (by deal flow) was won by Java Capital. (L-R) Arie Marie (Ansarada), Wilson Baloyi and Kevin Joselowitz (Java Capital) and Marylou Greig (DealMakers).
The category of Sponsors (by deal value) was won by Absa CIB. (L-R) Kevin Brady (A2X) and Bonnie Brink.The category of Sponsor (by deal flow) was won by Nedbank CIB. (L-R) Michelle Benade (Nedbank CIB), Kevin Brady (A2X), Sujal Roy and Ryan Morrison (Nedbank CIB).The category of Legal Adviser (by deal value) was won by Bowmans. (L-R) Simla Ramdayal (WTW) and Tholinhlanhla Gcabashe.The category of Legal Adviser (by deal value) was won by Cliffe Dekker Hofmeyr. (L-R) Simla Ramdayal (WTW) and Roxanna Valayathum.The award for Transactional Support Services Adviser (by deal value) was presented to Deloitte. Thembeka Buthelezi received the award from Marylou Greig (DealMakers).Mdu Luthuli received, on behalf of Deloitte, the award for the Top Transactional Support Services Adviser (by deal flow) from Marylou Greig (DealMakers).
Winners of other awards presented on the night were:
In the category of General Corporate Finance:
Investment Adviser (by deal value): Rand Merchant Bank Investment Adviser (by deal flow) tie: PSG Capital and Investec Bank
Sponsor (by deal value): Investec Bank Sponsor (by deal flow): PSG Capital
Yet another quiet week on SENS – but this, I am told by those advising on deals, is not a true reflection of the current level of M&A activity. Well, that is good news especially as the country’s elections loom larger.
Transaction Capital has released further details of its proposed unbundling and listing of WeBuyCars (WBC). Prior to the listing, Transaction Capital plans to raise between R900 million and R1,25 billion by issuing shares in the second-hand car dealer. Shares will be issued to Coronation giving the asset manager an 11.3% stake at a cost of R760 million. New investors will be able to subscribe via a capital raising exercise of c.R750 million. This will reduce Transaction Capital’s stake from 74.9% to a range of between 57% and 67%. WBC’s founders’ shareholding will reduce from 25.1% to 10%. Proceeds from the various capital raising initiatives will be utilised by Transaction Capital for the settlement of debt at holding company level. The implementation date of the unbundling and listing is anticipated to occur during early April 2024.
Sirius Real Estate has acquired a further two business parks in Germany. The parks, one in Köln and the other in Göppingen, have been acquired for a total cost of €40 million using proceeds from the €165 million capital raise.
The Competition Commission has approved a deal which will see Sanlam’s private equity arm acquire Bacher, a distributor and wholesaler of high-quality brands such as Hugo Boss and Tommy Hilfinger.
As part of its strategic review of its investment portfolio, Brimstone Investment has disposed of 8,836,487 ordinary shares in Equites Property Fund for a total consideration of R123,9 million. The proceeds from the disposal will be applied to meet funding obligations in the near to medium term. The disposal is classified as a Category 2 transaction and accordingly does not require shareholder approval.
The logistics and fleet management company, Karooooo, will embark on a share repurchase programme to buy back up to 10% of its shares. This will be done through market purchases on the JSE and the Nasdaq.
Following the launch of the share buy-back programme announced in October 2023, AB InBev has repurchased a further 512,809 shares at an average price of €58.46 per share for an aggregate €29,98 million. The shares were repurchased over the period 5 – 9 February 2024.
Prosus and Naspers continued with their open-ended share repurchase programmes. During the period 5 – 9 February 2024, a further 4,080,757 Prosus shares were repurchased for an aggregate €118,88 million and a further 493,133 Naspers shares for a total consideration of R1,48 billion.
MC Mining’s Independent Board, has again, recommended to shareholders not to accept the off-market takeover offer from Goldway warning that it is opportunistic, and does not provide an appropriate premium for control.
The JSE has warned shareholders that Ellies has failed to submit its interim report within the three-month period as stipulated in the Listing Requirements. If the company still fails to submit its interim report by 29 February, then its listing may be suspended.
Five companies issued profit warnings this week: Sasol, Insimbi Industrial, Gold Fields, Cashbuild and Kap.
Cognition was the only company to issue a cautionary notice this week.
Get the latest recap of JSE news in the Ghost Wrap podcast, brought to you by Mazars:
DRDGOLD can be very thankful for the gold price (JSE: DRD)
Without the increase, this period would’ve been a catastrophe
2023 wasn’t an easy year for DRDGOLD. The company had fallen behind on bringing new reclamation sites on stream to replace depleted sites. This was due to various external factors, ranging from delays on water usage licenses through to community interference. This forced the company to turn to legacy and clean-up sites to make 2023 a workable year – a situation made all the more frustrating by better gold prices that needed to be taken advantage of.
So, for the six months to December 2023, throughput fell 13% and production was down 7%, with better grades from the clean-up sites helping to mitigate some of the throughput pain.
Here’s an excellent summary of what life is like at mining dumps around Joburg:
Despite all this, DRDGOLD managed a 12% increase in revenue thanks to a 22% increase in the average rand gold price. Operating profit was up 15%, with operating margin expanding from 29.9% to 30.6%. A dividend of 20 cents per share has been declared.
The remainder of 2024 looks far more encouraging as all of the new sites are now up and running. There are also good reasons why costs should be better, including the completion of the solar power plant at Ergo that is scheduled for completion in March 2024.
Inflationary pressures cannot be ignored though, with cash operating cost guidance increased from R770,000/kg to R800,000/kg. This is a very tough way to make money, sadly, made all the more difficult by issues in Joburg.
The important numbers look good at Pan African Resources (JSE: PAN)
The group took advantage of the stronger gold price
The gold price doesn’t always do what we would like it to. In fact, it rarely behaves itself, seeming to move based on everything from inflation through to the gravitational pull of the moon. This means that when the price moves higher, gold mines absolutely must take advantage of this.
Pan African Resources did exactly that in the six months to December, with gold production up by 6.7% and an encouraging narrative around potentially upgrading guidance for the full year. Thanks to strong production and despite inflationary pressures, all-in sustaining costs (AISC) per ounce dipped slightly from $1,291/oz to $1,287/oz and full-year guidance has also been improved in this regard.
HEPS for the period was up 46.1%, which is obviously a strong result. Due to significant capex at the Mogale Tailings Retreatment project, net debt increased from $53.7 million to $64.3 million year-on-year. Steady state production is expected at the project by December 2024.
Universal Partners recognises a significant fair value loss (JSE: UPL)
The net asset value is down year-on-year as a result
Universal Partners holds a genuinely unique portfolio of assets, at least from a JSE perspective. They have everything from a dental roll-up business through to special toilets. No kidding.
Portman Dentex is actually a great example of a growing trend in the UK to combine fragmented services offerings into larger groups. This is now one of Europe’s largest dental care providers, fighting tooth decay across several countries. Following the merger of Portman and Dentex, Universal became a minority shareholder in the enlarged group. The business is performing ahead of budget, but higher borrowing costs have meant a shift in focus to operational efficiencies rather than lots of new acquisitions. Still, the business acquired three new practices during the quarter and how has over 400 practices in the group.
Another roll-up style play is Workwell, which doesn’t always work well. This is an accountancy and payroll business focused on contractors and freelancers as clients. That sounds like a lot of hard work to me – the exact opposite of lucrative B2B strategies. The business has struggled during a challenging labour market in the UK but is now in line with budget for the first quarter.
SC Lowy is a credit investing and lending group. The funds delivered a decent performance for the year, which is to be expected when yields are higher. The business in Italy, Solution Bank, achieved a record year.
Global recruitment business Xcede achieved the revised profit forecast for 2024. To help with working capital needs, Universal Partners subscribed for £1.5 worth of loan notes issued by Xcede.
We then arrive at Propelair, a toilet that uses just 1.5 litres of water per flush vs. 9 litres like a traditional toilet. Sounds good, but toilets turned out to be a rather kak business sadly. The company is way behind the original business plan and the investment is valued at a nominal amount.
The net asset value per share is £1.297, which equates to just over R31. The share price is R24. It is down from £1.429 a year ago, with fair value losses as a contributor to that.
Little Bites:
Director dealings:
Hot on the heels of Brimstone deciding to sell shares in Equites (JSE: EQU), the COO has also sold shares in the company. The sale is worth R6.9 million. The director has a loan agreement with Investec that is secured by shares and value of the loan has now been reduced.
Naughty, naughty: an independent non-executive director of Reunert (JSE: RLO) bought shares in the company worth R151k without obtaining prior clearance.
At Capital Appreciation Limited (JSE: CTA), the chairman, CEO and CFO only sold enough of their vested share options to pay the tax, whereas the divisional directors cashed in on share options in full. This isn’t an unusual situation given the variance in earnings at group executive vs. divisional executive levels.
Fortress Real Estate (JSE: FFA | JSE: FFB) announced that Moody’s has affirmed Fortress’ ratings and has upgraded the rating outlook from negative to stable.
Deutsche Konsum (JSE: DKR) shares literally never trade on the JSE, so I include this note just to give a data point on how German property is performing. For the quarter, net rental income (i.e. after operating expenses) fell 2.0% and FFO declined by 21.1% because of funding costs. The net loan-to-value at the fund decreased slightly from 61.6% at the end of September to 60.7% at the end of December.
In an announcement that you won’t see every day, an employee of the designated advisor of Visual International (JSE: VIS) bought shares worth R900. The designated advisor is the JSE listings requirements advisor for companies listed on the AltX.
Get the latest recap of JSE news in the Ghost Wrap podcast, brought to you by Mazars:
No sign of improvement at Cashbuild (JSE: CSB)
This sector continues to take strain
As we’ve seen at Italtile and within certain other groups, the so-called DIY sector continues to struggle. Building and construction materials only enjoy strong demand when consumers are feeling so confident about an economy that they want to invest in fixed assets. You know, the kind that are attached to the ground.
South Africa isn’t exactly filling people with confidence right now and that’s before the latest round of load shedding.
To add to the absolute lack of faith in the country’s economic future, we have high interest rates that make capital projects expensive.
The net result? A drop in HEPS at Cashbuild for the 26 weeks ended 24 December 2023 of between 15% and 25%.
Although earnings per share (EPS) is rarely an area of focus on the local market, impairments to goodwill are so large for P&L Hardware and other business units that earnings could be as low as break-even! That’s a big ouch.
Gold Fields couldn’t fully capitalise on a higher gold price (JSE: GFI)
Although within guidance, key production and cost metrics deteriorated year-on-year
Gold Fields released a trading update dealing with the year ended 31 December 2023. Full year attributable gold production is down 4% year-on-year and all-in costs are $1,512/oz, which is 15% higher year-on-year. When less gold is sold, expenses per ounce go up – especially when there are also inflationary pressures.
All-in sustaining costs (AISC) for the year were $1,295/oz, which is 17% higher year-on-year.
HEPS for the year is expected to be 18% to 24% lower, driven mainly by the once-off net proceeds for the Yamana deal break fee having been received in 2022. If you strip those out and if you use normalised earnings per share instead, it comes in between 1% and 7% higher year-on-year.
Santam’s HEPS is higher, but perhaps not for optimal reasons (JSE: SNT)
Sometimes you just have to take the wins wherever you can get them
The good news at Santam is that the year ended December 2023 saw the company achieve HEPS growth of 17% to 37%. Nobody is going to complain about that.
The “bad” news is that the jump is thanks to better investment returns on the insurance float (which gets invested in money market and fixed interest portfolios), rather than a strong result from the insurance operations themselves. The net underwriting margin is expected to be below the long-term target range of 5% to 10%. Various risk events (including exposure to earthquakes in Turkey) have impacted this margin, with the final release of Covid-related business interruption claims provisions helping to mitigate some of the issues.
Although the investment of the float is an important part of the economics of any insurance business, it would also be good to see the underwriting margin heading in the right direction, especially if we start to move into a cycle of decreasing interest rates.
Textainer releases earnings ahead of the all-important shareholder meeting (JSE: TXT)
The drop in full year HEPS reflects the cyclical nature of this industry
Textainer is literally just a few days away from the shareholder meeting to vote on the transaction that would see Stonepeak acquire all the shares in the company for $50 per share. This is why the company didn’t even host an earnings call to accompany these results.
Still, the results are important and shareholders will consider them as part of the vote. For the full year, HEPS fell from $6.14 to $4.59 as shipping cooled off vs. the post-pandemic period.
It’s interesting to note that in the nine months leading up to the Stonepeak announcement, Textainer repurchased shares at an average price of $36.31. That’s way below the Stonepeak offer, so that’s solid capital allocation from a shareholder perspective.
Stonepeak deal aside, Textainer has declared a dividend of $0.30 per share payable on 15 March 2024.
Transaction Capital lifts the lid on the WeBuyCars unbundling (JSE: TCP)
And a capital raise by the company for good measure
Transaction Capital has given the market details on the proposed structure of the WeBuyCars unbundling, which includes a few twists and turns that the market wasn’t expecting. In a separate announcement, the group also gave an update on the trading performance of WeBuyCars for the four months to 31 January.
The good news is that the positive momentum in the second half of the last financial year has continued into the new year, with revenue up 16% for the four months and core earnings up by 20%. Cash generated from operations has jumped beautifully by 57%, as the inventory value is only up by 2% despite the jump in revenue. Importantly, net interest bearing liabilities (R734 million in property finance on the vehicle supermarkets and R300 million for inventory) fell by 26%.
The blemish on this result is the finance and insurance (F&I) penetration, which was 19.4% in this period – down from 21.6% in the comparable period. Although shareholders would like to see this moving higher, it’s not enough to distract from the excellent financial results for this period.
This performance has come at the right time, as Transaction Capital needs to realise the value of a portion of its stake to help the company navigate its nightmare in SA Taxi. To achieve this, Transaction Capital will reduce its stake in WeBuyCars from 74.9% to between 57.5% and 67.5% prior to unbundling. The founders of WeBuyCars will also dilute from 25.1% to not less than 10% prior to unbundling.
On the whole, Transaction Capital plans to unlock between R900 million and R1.25 billion in cash prior to the unbundling. This will be used to settle debt and other obligations. Of great importance is that the call and put option structure with the founders of WeBuyCars will be cancelled, as they will now realise their value through the capital raising initiatives.
Note: the following section has been updated after a discussion with the management team to further understand the nuances of the deal:
The deal structure is complicated and involves various cash flows. With all said and done, the correct interpretation of the value of WeBuyCars seems to be R7.5 billion. In case you’re wondering if this view can be backed up by third party deals, the answer is that you’ve got Coronation, Stockdale Street Investment Partnership (the Oppenheimer family) and Ellvest (the Ellerine family) coming on board at this value. I initially thought the value might be more like R4 billion – R5 billion but that was without the benefit of the strong recent trading performance. As a Transaction Capital shareholder, I’m not complaining.
The market appreciated this news, sending the Transaction Capital share price 10% higher to R8.26. The announcement references a sum-of-the-parts valuation by the independent expert that values Transaction Capital at R11.86 per share, which is a great indication of just how much value was destroyed by SA Taxi in recent times. In case you’ve forgotten, Transaction Capital traded above R50 a share in early 2022.
Little Bites:
Director dealings:
Acting through Protea Asset Management, Sean Riskowitz has bought another R4.37 million worth of shares in Finbond (JSE: FGL).
Although I’m not 100% sure how the British American Tobacco (JSE: BTI) share compensation plan works, it’s notable that the interim finance director sold £250k worth of shares from the company’s share plan account.
The CEO of Datatec (JSE: DTC) bought another R4.05 million worth of shares in the company, taking his stake to 15.6% in the company. Conversely, the company secretary sold shares worth R346k.
A director of a major Dis-Chem (JSE: DCP) subsidiary sold shares worth R1.56 million.
The CEO of Sirius Real Estate (JSE: SRE) has bought shares worth £19.8k in a self-invested pension.
An associate of a director of Huge Group (JSE: HUG) has bought shares worth R28.6k.
We use cookies on our website to give you the most relevant experience by remembering your preferences and repeat visits. By clicking “Accept All”, you consent to the use of ALL the cookies. However, you may visit "Cookie Settings" to provide a controlled consent.
This website uses cookies to improve your experience while you navigate through the website. Out of these, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may affect your browsing experience.
Necessary cookies are absolutely essential for the website to function properly. These cookies ensure basic functionalities and security features of the website, anonymously.
Cookie
Duration
Description
cookielawinfo-checkbox-analytics
11 months
This cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Analytics".
cookielawinfo-checkbox-functional
11 months
The cookie is set by GDPR cookie consent to record the user consent for the cookies in the category "Functional".
cookielawinfo-checkbox-necessary
11 months
This cookie is set by GDPR Cookie Consent plugin. The cookies is used to store the user consent for the cookies in the category "Necessary".
cookielawinfo-checkbox-others
11 months
This cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Other.
cookielawinfo-checkbox-performance
11 months
This cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Performance".
viewed_cookie_policy
11 months
The cookie is set by the GDPR Cookie Consent plugin and is used to store whether or not user has consented to the use of cookies. It does not store any personal data.
Functional cookies help to perform certain functionalities like sharing the content of the website on social media platforms, collect feedbacks, and other third-party features.
Performance cookies are used to understand and analyze the key performance indexes of the website which helps in delivering a better user experience for the visitors.
Analytical cookies are used to understand how visitors interact with the website. These cookies help provide information on metrics the number of visitors, bounce rate, traffic source, etc.
Advertisement cookies are used to provide visitors with relevant ads and marketing campaigns. These cookies track visitors across websites and collect information to provide customized ads.
