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GHOST BITES (AfroCentric | Aspen | Bidvest | Clientele | Italtile | JSE | MAS | Metrofile | MTN | Mustek | PPC | RCL Foods | Santam)

The Finance Ghost
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GHOST BITES (AfroCentric | Aspen | Bidvest | Clientele | Italtile | JSE | MAS | Metrofile | MTN | Mustek | PPC | RCL Foods | Santam)

There isn’t much of a narrative at AfroCentric – and not much in the way of profits, either (JSE: ACT)

This is a rather strange approach to delivering bad numbers

AfroCentric released results for the six months to December. They are objectively awful. Sure, the comparative period is the 12 months to June 2024 due to a change in year-end, so one would expect profits to be “down” roughly 50% as we are comparing 6 months to 12 months.

Alas, although revenue was 51.8% lower (and hence in line with a reasonable expectation), AfroCentric actually made a loss in the six months to December. At HEPS level, they managed a paltry 3.80 cents in earnings – down 90.6% vs. the comparative period.

Sadly, the company puts zero effort into explaining why. If there was a laziness award for financial reporting, this would be gold star stuff. Sure, the endless pages of financials are there, but where is the management narrative? Where is the outlook?

I can only assume that for whatever reason, AfroCentric doesn’t want you to buy their shares. There’s no other explanation for why such a small company puts such little work into explaining this trajectory.

As a rand hedge, Aspen was negatively impacted by recent rand strength (JSE: APN)

The market loved the constant currency numbers, though

The six months to December at Aspen is a great example of how severe the impact of currency movements can be. Revenue was up 9% at constant exchange rates, yet it was only 4% higher when reported in rand. This trend carries on all the way down the income statement until you get to normalised HEPS, up 17% at constant rates and only 5% as reported.

One of the negative impacts on HEPS was a 20% jump in normalised net financing costs, driven by higher rates and debt levels. Although net leverage remains comfortably within the targeted range, the bankers are getting a bigger slice of the pie than before.

From a margin perspective, the Manufacturing segment showed the largest change. The gross profit margin jumped from 5.3% to 15.9% as the underlying mix and business model evolved. Despite revenue being flat at constant rates, normalised EBITDA more than doubled!

Overall, there’s bullish sentiment heading into the second half of the year. They also expect a strong period of cash flow, as well as lower effective interest rates, so that should do wonders for profit conversion. The market really liked what it saw, with Aspen closing nearly 12% higher on the day!

A mixed result at Bidvest (JSE: BVT)

And plenty of new debt for acquisitions

The six months to December 2024 won’t go down as one of their best at Bidvest. Revenue increased by 6%, but trading profit was flat as margin contracted by 66 basis points. Group HEPS was up just 3%. Even worse, HEPS from continuing operations actually fell by 1%. The interim dividend was up just 1%, despite cash generated from operations increasing by 18%.

You might think that the Automotive segment was where the problems were found, given the level of disruption in that space. Instead, due to management actions taken, that segment actually grew profit by 14.1%! Some of this is due to acquisitions like Dekra, so don’t assume that this is entirely thanks to the dealerships business.

The problem children were the Commercial Products division (down 26.9% due to a massive slump in renewable energy product sales), Adcock Ingram (trading profit down 17% as consumer spending came under pressure and pharmaceutical wholesalers reduced their stock levels) and the Freight division, with an 11.9% drop in trading profit impacted by issues like maize exports.

The winner? Bidvest Services South Africa, up 16% with great results across the underlying offerings. As people have returned to work and everyone is getting out and about again, so the demand for property services has increased.

At the same time as these pressures, net debt jumped substantially due mainly to corporate actions. This drove a 17.2% increase in interest charges. Bolt-on acquisitions are part of the game at Bidvest, so there will be periods like this in which they ramp up the debt. There will also be disposals, with the sale of Bidvest Bank and FinGlobal still subject to regulatory approvals.

Decent growth at Clientèle – and a lesson in why HEPS is so important vs. EPS (JSE: CLI)

The insurance industry is putting out strong results at the moment

Clientèle has released a trading statement dealing with the six months to December 2024. The range for HEPS is frustratingly wide, with expected growth of between 2% and 17%. The mid-point suggests around 10% growth, which is a decent outcome.

But why the trading statement? After all, the trigger to release one is an expected change of at least 20%. The answer lies in Earnings Per Share (EPS), expected to be up by between 222% and 245%. A bargain purchase gain of R469 million on the 1Life acquisition is the major driver here.

Therein lies a very important point: although the price paid for the 1Life acquisition reflects management’s approach to deals and certainly shouldn’t be ignored, the jump in EPS is clearly not an indication of sustainable earnings growth. For that, we must look to HEPS.

What happened to Italtile’s dire warnings about the manufacturing segment? (JSE: ITE)

And what will life-after-two-pot look like?

Last year, Italtile was telling anyone willing to listen that the manufacturing side of the business was in trouble. Overcapacity in South Africa was a real issue, putting pressure on performance for manufacturers dealing with a fixed cost base.

Now, with the release of interim results, that narrative has all but disappeared – in the SENS announcement, at least. There’s simply a note that this is a deflationary environment for ceramic tiles, forcing the manufacturing business to look for cost efficiencies. That’s a much less severe narrative than we saw before. If you read the full set of results though, you’ll see some of the difficult language coming back when they talk about the manufacturing business.

With system-wide turnover down 1% for the period, it’s hard to imagine that the overcapacity issues in the market have really become that much less of a problem, so I tend to believe the detailed narrative of concern vs. the short-form SENS announcement that almost brushes over the issue. Capacity utilisation was 76% in Q2 and we know that number was better than Q1 (even though they don’t give the percentage). Italtile acknowledges the benefit of the two-pot system in their business in Q2, so I don’t think they are extrapolating the Q2 period.

Despite the dip in system-wide turnover, they managed to grow trading profit by 3% and HEPS by 4%. Although they are heavy on narrative and pretty light on Q1 vs. Q2 numbers, it’s clear that they were thrown a lifeline by the market at the end of 2024. In the end, the Manufacturing segment only saw its profit before tax decrease by 5% based on revenue decreasing by 2%. In Retail, sales were up 3.6% and profit before tax followed suit.

Alas, the deterioration in sentiment in 2025 has taken the shine off performance at the stores, though we must wait for full-year results to know for sure. For now, we know that the first two months of the calendar year saw flat revenue in the retail business and weaker revenue in manufacturing.

Italtile is down 19% year-to-date. My choice in this sector, Cashbuild, is down 13%. Over 12 months, Cashbuild is up 29% and Italtile is up just 7%.

The JSE’s return on equity has moved above 20% (JSE: JSE)

But keep an eye on the payout ratio

This is always a fun thing to learn for new investors: the JSE is listed on the JSE! The company that actually owns and operates the exchange is listed on its own product. Hence, the share code JSE: JSE.

For the year ended December 2024, HEPS improved by 9.6% and the dividend increased by 5.6%. Let’s face it: these aren’t amazing growth numbers when you consider the backdrop of the GNU and all the improved sentiment on the local market. It’s worth highlighting that 37.8% of operating income is non-trading in nature i.e. not linked to volumes on the local market. When you build a more resilient model, you don’t get to participate fully in the upswings. Of course, you also don’t suffer as much in the downswings!

The market treats the JSE as a dependable cash cow that generates great returns on shareholder equity. With return on equity moving up from 19.4% to 20.2%, they’ve certainly managed the latter. The decrease in the payout ratio does call the former into question, particularly when viewed in the context of a 1.5% decrease in net cash from operations.

The JSE has to hold huge cash and bond balances, so a favourable interest rate environment makes a difference to them. Net finance income was up 21% year-on-year.

The share price is up 44% over 12 months and is even in the green year-to-date, unlike so many of the companies listed on the exchange.

Separately, the company announced that Dr Suresh Kana will retire as lead independent director (and chairman of a few committees) after nine years on the board. Ben Kruger is taking over as the new lead independent director.

Earnings up and dividends still on hold at MAS (JSE: MSP)

But there’s a deal on the table that could bring them back sooner

When MAS took the decision late in 2023 to stop its dividends and focus on getting ready for difficult debt maturities in the subsequent years, the market had a complete panic. The share price nosedived, as South African property sector investors love dividends.

Today, the price is back where it was before the plunge. If you bought that dip right at the bottom, you’re up around 50% since then!

Patience is still the order of the day though, as there’s no dividend despite a 13.1% increase in distributable earnings in the six months to December 2024. The tangible net asset value per share increased by 7.2%, so that also headed in the right direction. Overall, they’ve enjoyed strong performance in the underlying portfolio as well as the DJV joint venture.

The major bond maturity that they are focusing on is in 2026. They’ve done a huge amount of work in securing debt finance to help with this. Even then, unless the proposed transaction with respect to the investment in the joint venture is implemented, dividends are on hold until at least the 2027 financial year and further asset disposals are likely to be required.

It’s interesting that there are such difficulties despite the loan-to-value being 25.6%. There’s an interesting lesson here, in that leverage ratios don’t tell you everything. You also have to consider availability of debt at the time of maturity, which is where the problems are in this case, as this means cash needs to be available for the redemption.

Along with the complexities of the joint venture relationship, this is why both Moody’s and Fitch have downgraded MAS’ credit ratings. The problem is that this can become a death spiral, as the downgrades make it even harder to raise debt. They also tend to increase the cost of debt.

So, the announced transaction related to the joint venture is clearly critical. It will see the joint venture repurchase the 60% held by PKM Development, leaving MAS will full control of the joint venture. The repurchase would be priced at a premium, which is unsurprising given how much trouble MAS is in, leading to a dilution of MAS’ tangible net asset value by an estimated 7.4%. There are a bunch of assumptions in that dilution calculation, so the final number could be quite different to that.

It’s not a completely painless solution for the balance sheet, as there’s a cash payment involved here that MAS is able to partially fund via an issue of unsecured debt at 10% per annum. A minimum cash payment of €30 million is required and hence the portion funded through this debt is likely to be just under €60 million.

But here’s the really good news: if the deal goes ahead in the next few months, MAS dividends could result as soon as September 2025.

It’s all to play for here!

Metrofile’s geographical complexities are hurting them (JSE: MFL)

It’s time to focus on home

Metrofile has gone from one disappointment to the next. The numbers for the six months to December reflect a 4% drop in revenue excluding Tidy Files (which they opted to exit in the prior year) and an 11% decrease in operating profit. EBITDA fell 8%. It only gets worse further down the income statement, with HEPS down 38% and the dividend per share dropping by 43%!

Yay for net debt coming down by 3%. At least there’s a faint silver lining here.

The reality is that the geographical exposure is a problem that needs to be solved now. Revenue in the South African business from continuing operations increased by 3% and operating profit jumped by 19%. Turnaround initiatives there seem to be working. Sadly, Rest of Africa saw revenue fall 10% and operating profit collapse by 67%. Middle East experienced revenue down by 7% and a deterioration back into an operating loss of R2 million.

The focus for the rest of the year is on free cash flow generation and further degearing of the balance sheet. They’ve also flagged that there will be a geographical review of the business, so perhaps we will see some major changes.

MTN Ghana shows what is possible in Africa (JSE: MTN)

Here’s how things are supposed to work

After the somewhat traumatising numbers released by MTN Nigeria, the results at MTN Ghana are quite the palate cleanser. For the year ended December 2024, they had healthy top-line growth (revenue up 34.5% and subscriber numbers all in the green) and they converted that into solid profits, with EBITDA up 31.3%. Although there’s a slightly contraction in EBITDA margin, that’s a strong growth rate. It’s worth noting that normalised EBITDA margin (after adjusting for a management fee reversal in 2023) would’ve been slightly up.

Profit after tax increased by 26.3%, so it was an excellent period overall despite the best efforts of the Ghana government to get their hands on more of the profits through tax assessments. The tax charge for the period was 59.7% higher year-on-year.

Capex only increased by 7.6%, which means that capex intensity fell. That’s good news for free cash flow.

The shift in usage is something to behold, with data revenue up 53.8% and voice revenue down 0.9%! The fintech side has a good story to tell, with MoMo revenue up 54.4%.

With medium-term guidance for service revenue growth in the high twenties range (in percentage terms), alongside the company’s ability to maintain and even grow margins, the business in Ghana shows why MTN goes through so much pain to be in Africa.

Mustek’s earnings have plummeted (JSE: MST)

And yet the share price is up 37% over 12 months

Corporate law enthusiasts (and active investors) would’ve sunk their teeth into the TRP ruling that Mustek released last week. You’ll find it here. It shows how intricate takeover law becomes, particularly when assessing concert parties and how this impacts a takeover offer.

Against this backdrop and all the uncertainty it creates going forwards in terms of ownership of the company, Mustek’s earnings have fallen severely. HEPS will be between 18.27 cents and 27.40 cents, a nasty drop of between 70% and 80%. They attribute this to the “prevailing local and economic challenges” faced by the business.

So how has the share price managed to retain its gains when earnings have fallen like this? The answer lies in the mandatory offer to be made by Novus (and its concert parties), structured as an offer of R13 per share in cash, or R7 per share plus one Novus share, or no cash and two Novus shares. Mustek is currently trading at R14.05 and Novus at R6.86 per share, so there’s a slight differential but not enough for any arbitrage.

In the absence of the offer, it’s hard to imagine that Mustek could maintain this share price. The latest earnings suggest 22.8 cents at the mid-point. If we double this for an elementary view of annualised earnings, the current share price is a P/E multiple of over 30x!

Detailed results are due for release on 6th March. Perhaps it will become clearer why the Novus management team wants to own more of this thing at this price.

PPC rallied on much stronger EBITDA margins (JSE: PPC)

Revenue is helpful, but margins pay the bills (and shareholder returns)

PPC released an operational update for the ten months to January 2025. Under the recently appointed CEO, their turnaround plan is called Awaken the Giant. They may as well have called it Awaken the Margins.

For the ten months, revenue fell by 3% but EBITDA jumped by a juicy 20%. That’s a 320 basis points improvement in EBITDA margin.

If we dig deeper, we find that revenue in South Africa and Botswana was up 2% despite sales volumes being slightly negative. Despite this modest growth, EBITDA increased by an impressive 32%, taking EBITDA margin from 11.4% to 14.8%. That’s even better than the interim period, which had margin of 13.7%. To add to the good news story in that business, free cash flow was 90% higher and the segment was in a net cash position of R106 million at the end of January.

In Zimbabwe, volumes were down 9% (as was experienced in interim results) and revenue fell 12% measured in rand. Again, EBITDA bucked the trend here, up 6%. This improved EBITDA margin from 21.6% to 26.0%. You may have noticed that the business in Zimbabwe operates at structurally higher margins than South Africa and Botswana. Zimbabwe improved its free cash flow generation, increased the dividends declared to the mothership PPC and still had $13 million in unencumbered cash at the end of January.

Overall, this is a strong trajectory from an earnings and cash perspective, further supported by an expectation for capex to be slightly below guidance for the full financial year. Lower capex means higher free cash flows. This must always be balanced against the risk of insufficient reinvestment in the business.

PPC is pushing ahead with the plan to increase capacity in the Western Cape, with the project in its final design stages before going to the board for approval. In line with what we’ve seen elsewhere in the group, the focus of the new plant is to achieve lower-cost production and better margins, which makes it value-adding to shareholders without relying on market growth.

The announcement ended on the news that the board will consider a dividend for the full year. A capital markets day is planned for 27 March to give more details on the turnaround plan and the strategy going forwards. Overall, the market saw more than enough here to justify the share price closing roughly 14% higher on the day!

Yum Yum numbers at RCL Foods (JSE: SNT)

And the market liked them, too

RCL Foods closed 5.5% higher after releasing numbers for the six months to December 2024. The market clearly enjoyed seeing revenue from continuing operations up by 5.4%, driving a substantial increase in underlying HEPS from continuing operations of 28.9%!

There’s also an interim dividend of 20 cents per share vs. nil in the comparative period.

Aside from the partial recovery of the additional levy raised by the South African Sugar Association in the 2023 financial year after Tongaat and Gledhow suspended payment of their industry obligations, there were also better results in the Grocery and Baking divisions. Interestingly, Sugar saw a dip in margin vs. a very strong base period.

I wasn’t surprised at all to see that Ouma Rusks have 60% market share. Is there anything more South African than a box of Ouma in the cupboard? Conversely, it’s odd to see that pet food came under pressure. I can only assume this relates to dogs, as cat owners know that they are never given a choice but to keep the food bowls full!

RCL Foods values the Ghost Mail reader base. For more details on the earnings, refer to this piece placed by the company.

Santam releases full details after a great year (JSE: SNT)

Insurance revenue and underwriting margins went the right way

Santam, like most of the insurance sector right now, had a great time in the year ended December 2024. HEPS jumped by a pretty spectacular 51%, although I must highlight that the full-year dividend only increased by 8.5%.

Before we dig into that payout ratio, we should deal with the drivers of the higher earnings. Group insurance revenue improved by 12% and the conventional insurance net underwriting margin jumped from 3.5% to 7.6%. Together with other factors like growth in the alternative risk transfer business and high returns on shareholder funds, it was a year to remember.

Nothing can ever be perfect, of course. Although share of gross written premium of Shriram in India and Pacific & Orient in Malaysia grew by 20%, net insurance results declined by 3%. They blame the high base for this move.

Back to the dividend. A dig through the detailed report reveals that dividends are declared with reference to the group solvency ratio, not just HEPS. Where they are well above the upper end of the target ratio over the medium to long term, they will consider a special dividend. The dividend that has been declared has brought the capital solvency ratio back within target range, so there’s no sign of another special dividend right now.

Total dividends for the year came to 1,400 cents per share. Based on the current Santam share price, it trades on a yield of 3.5%. Together with a share price performance of 33% over the past 12 months, this tells you that the market cares more about growth in the business than growth in the dividend.

Nibbles:

  • Director dealings:
    • A director of a major subsidiary of Lewis (JSE: LEW) sold shares worth R8.9 million. I can’t help but wonder whether the strong end they had to 2024 has washed away to some extent in 2025.
    • An associate of a director of Visual International (JSE: VIS) subscribed for shares in the company worth R5 million at a price of 4 cents per share. The current market price is 2 cents per share.
    • The CEO and founder of Datatec (JSE: DTC) bought shares in the company worth R4.8 million. He quite regularly adds to his stake in the company that he built.
    • A non-executive director of KAP (JSE: KAP) bought shares in the company worth R999k.
    • A director of Motus (JSE: MTH) bought shares worth R476k.
    • Acting through Titan Premier Investments, Christo Wiese has bought R300k worth of ordinary shares in Brait (JSE: BAT).
    • The CEO of KAL Group (JSE: KAL) bought shares worth R43.5k.
    • Oddly, the CEO of Crookes Brothers (JSE: CKS) sold shares worth just R1k.
  • MC Mining (JSE: MCZ) announced that the key condition to the second closing of the KDG deal has been met. The first close saw KDG subscribe for an initial stake of 13.04% in MC Mining. With regulatory approvals now met for the largest deal, the parties have agreed to nine instalments to reach the aggregate amount of $77 million for the share subscription. With all said and done, KDG will hold 51% of MC Mining. The final payment is expected to be in February 2026.
  • NEPI Rockcastle (JSE: NRP) has released a circular dealing with the payment of the recently announced dividend. There’s a big change this time: no scrip dividend is being offered, presumably in an attempt to avoid further dilution in distributable income per share. Instead, shareholders can choose between a cash dividend or a reduction of capital, which is ultimately a tax deduction.
  • Barloworld (JSE: BAW) is in the process of investigating potential export control violations in respect of sales of certain goods to its Russian subsidiary. The US Department of Commerce, Bureau of Industry and Security (BIS) has granted an extension of the deadline for this to be completed. Barloworld will therefore need to submit a final narrative account of voluntary self-disclosure by 2 June 2025.
  • Sappi (JSE: SAP) is offering €300 million in senior notes due 2032. They will use €240 million of this to redeem all outstanding senior notes due 2026. The rest is for general corporate purposes. Unsurprisingly, the new issue is of sustainability-linked senior notes, with Sappi able to tap into that kind of funding due to the nature of its business. The company separately announced that a new document about the group is available on its website, but they gave the home page link instead of where you’ll actually find the doc. After a few minutes of searching, I lost interest. It’s really not that difficult to include the specific URL in the SENS announcement.
  • It’s not uncommon to see large property funds go on major asset disposal programmes when they need to make substantial changes to their portfolios. Assura (JSE: AHR) is one such example, selling seven assets for £64 million into a joint venture in which they retain a 20% stake and earn management fees. This takes them to a total of 30 assets sold since the start of the financial year for a total of £200 million. The weighted average net initial yield on sale is 4.8% and they’ve used the proceeds to reduce the debt used to buy the £500 million private hospital portfolio that was acquired in August 2024 at a 5.9% yield. In other words, they’ve bought low and sold high, which is what you want to see! The pro-forma loan-to-value will reduce to 47%. There is still very little volume in this fund on the local market.
  • Sygnia (JSE: SYG) shareholders approved the odd-lot offer. It will be priced based on the 30-day VWAP calculated with reference to 7 March, so the price for the offer will be announced on 10th March. Remember, an odd-lot offer only applies to holders who have fewer than 100 shares. At the current share price, that’s a position of roughly R2.3k and lower.

RCL Foods delivers a pleasing half-year performance

RCL Foods
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RCL Foods delivers a pleasing half-year performance

Market share maintained across the portfolio

  • Revenue from continuing operations up 5.4% to R13.6 billion
  • EBITDA from continuing operations up 25.1% to R1.55 billion
  • Underlying EBITDA from continuing operations up 20.5% to R1.39 billion

Tangible benefits yielded for shareholders

  • Earnings per share from total operations up 12.8% to 135.1 cents
  • Headline earnings per share from total operations up 35.4% to 109.4 cents
  • Underlying headline earnings per share from continuing operations up 28.9% to 99.8 cents
  • Interim dividend of 20 cents per share declared

Segmental commentary

  • Groceries benefitted from a favourable product mix in pet food, improved margins resulting from lower raw material input costs, savings initiatives, production efficiencies and reduced load- shedding.
  • The Baking business unit delivered an improved performance, despite muted volumes in most categories. A focus on continuous improvement and net revenue management initiatives, lower input costs and the suspension of load-shedding drove their improved result.
  • After consecutive years of record performance off a high base, Sugar continued to deliver strong results, aided by continuous improvements in operational performance and reduced industry exposure to lower margin raw exports. Despite higher sales volumes, Molatek was down on the prior period mainly driven by a less favourable sales mix and rising input costs.

Results summary:

JOB029396_RCL_SFA_Interims_v9a_LLN

The full reporting suite can be accessed here.

GHOST BITES (AECI | Altvest | Merafe | MTN | Northam Platinum | Primary Health Properties | Sabvest | Safari Investments | Thungela)

The Finance Ghost
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GHOST BITES (AECI | Altvest | Merafe | MTN | Northam Platinum | Primary Health Properties | Sabvest | Safari Investments | Thungela)

AECI announces a B-BBEE deal for AECI Mining (JSE: AFE)

This is a broad-based trust structure with notional funding

AECI is taking steps to improve the Black Ownership of AECI Mining. In that industry, it should hopefully increase the competitiveness of the business.

The AECI Foundation has been set up as a Broad-Based Ownership Scheme and will subscribe for B ordinary shares in AECI Mining, giving the foundation a 15.5% effective interest. The shares specifically reference the South African operations of AECI Mining, so they are avoiding unnecessary dilution of other businesses.

This takes AECI Mining to the all-important level of at least 51% Black Ownership, with the foundation focused on benefits for children in the areas in which AECI Mining operates.

The transaction value is R522 million. The foundation is getting a cash contribution from AECI Mining of 35% of the value, with notional vendor financing making up the remaining 65%. The funding rate on the notional vendor financing is the lower of dividends declared in respect of the B Ordinary shares and 60% of the prevailing prime rate. This is an evergreen structure, with the funding in place until it has been reduced to zero.

To help the foundation with its objectives, there is a trickle dividend of 20% of distributions from AECI Mining for the first 10 years and 25% thereafter.

Simply, this means that existing AECI shareholders are incurring a cost of 35% of R522 million, as even though the money goes out and comes straight back, their economic interest is being diluted and no new capital is coming in. Also, 60% of prime is much lower than the cost of equity, so AECI shareholders have also funded the rest of the stake at a rate that is highly favourable to the foundation.

What do they get in return? Apart from some feel-good pages in the next integrated report, they will hopefully reap the benefits of 51% Black Ownership. In a perfect world, the value of this would more than offset the cost of the deal. This rarely happens in practice, but perhaps AECI will be different!

Altvest’s credit fund gets a boost (JSE: ALV)

Executives have given personal sureties here – in return for a fee

Among larger listed companies, you’ll practically never see things like personal sureties. This is because the listed company is an institution that is completely separate from its founders and executives. But among startups and even small listed companies, the link between founder and company is much stronger.

Altvest is firmly in the startup camp and the management team is focused on scaling the group by getting the underlying financial services verticals to grow. One such vertical is the Altvest Credit Opportunities Fund (ACOF), which aims to provide predominantly women-owned SMEs with access to finance. The good news is that Altvest has managed to lock in a five-year loan of R75 million from the Small Enterprise Development and Finance Agency (SEDFA) to boost the ability of that fund to lend to SMEs.

Aside from cession of the SEDFA-funded loan book as security, Warren Wheatley and his wife Tatum Wheatley have had to give sureties over shares in Altvest that they hold directly and indirectly. In return, they are receiving an annual fee of 2% on the pledged security, which comes to R1.7 million per annum. By my maths, the fee is actually 2.3%.

The board of Altvest has approved this arrangement based on the view that these are normal commercial terms.

Speaking of the board, there are three directors who won’t make themselves available for re-election at the AGM. To help fill one of the gaps, the chairperson of ACOF (Norma Sepuma) is being appointed to the group board as lead independent non-executive director. This also tells you that ACOF is the focus area at Altvest at the moment and is perhaps their most obvious route to achieving scale.

Merafe impacted by lower ferrochrome prices (JSE: MRF)

This is how cyclical businesses work

Merafe has released a trading statement dealing with the year ended December 2024. Like all commodity companies, there are good times and bad times. This wasn’t a good time.

Due to lower ferrochrome prices, weaker volumes and the rand going the wrong way for them, HEPS is down by between 19% and 39%. This puts it on between 36.9 cents and 48.9 cents. The share price closed 4.4% weaker at R1.09, which means a trailing P/E of 2.5x!

Merafe always seems to trade at one of the lowest P/Es on the local market due to the risks of the business model.

Forex remains a headache at MTN Nigeria (JSE: MTN)

Well, more like a migraine

MTN Nigeria has released results for the nine months to September 2024. There aren’t many highlights, so brace yourself accordingly.

Firstly, total subscribers fell by 0.9%. That’s not a great start, with NIN-SIM regulations as the major driver. Active mobile money wallets tanked by 21.8%. The small silver lining is that active data users increased by 5.1%.

Despite this, service revenue increased by 33.6%. Sounds great, except EBITDA fell by 5.3% due to inflationary pressures and the impact of Naira depreciation on operating expenses. This means EBITA margin plummeted by 14.9 percentage points to 36.3%, a truly horrible outcome. The renegotiated tower lease contracts only helped by 2.3 percentage points.

Once forex losses (the translation effects, not just the impact on underlying contracts exposed to the USD) come into play, you find a loss after tax of N514.9 billion. Again, in the interest of finding silver linings, the Q3 number was a profit after tax of N4.1 billion, so at least the downward spiral has stopped.

Adjusting for the net forex loss, profit after tax was down 59.2% to N118.5 million. Sadly, that’s like me adjusting for my genetics and my enjoyment of Magnum ice creams and then claiming to be a successful 100-metre sprinter. They go and step further and adjust for the forex impact on operating expenses, in which case profit after tax would’ve been up 13.3%. I can’t even think of an analogy for that!

Capital expenditure was 27.8% lower and free cash flow was 21.9% higher. That’s probably the brightest of silver linings here.

Although the company is making efforts to reduce its foreign currency exposure, there’s also only so much that they can do. MTN Nigeria faces immense structural challenges.

A cyclical smack at Northam Platinum (JSE: NPH)

HEPS has halved

Northam Platinum released results for the six months to December 2024. As regular readers will already know, the PGM sector has been a mess. Northam Platinum is just another victim of the cycle.

Revenue is down 3.1% and operating profit has fallen by a nasty 55.2%. Operating margin has decreased from 16.1% to 7.5%. Not only is HEPS down by 49.7%, but the dividend per share has plummeted by 85%!

One of the interesting things at Northam is that you get an idea of how much variance there is in the PGM mine cost curve. For example, while Booysendal manages to produce at R18,000 – R19,000 in terms of unit cash cost per 4E oz, Eland is all the way up at R36,000 – R37,000. That’s literally double the cost! Zondereinde is at R27,000 – R28,000 and the group average is thus R25,500 – R26,500.

For context, Northam’s revenue per refined 4E ounce was R31,835/oz, so Eland is running at a loss per ounce and there’s not much headroom left at Zondereinde either.

Like all companies in this sector, all that Northam can do is try to control factors that are controllable, namely production volumes and cost of production. They have to hope that PGM prices will do the rest.

Primary Health Properties achieved decent dividend growth (JSE: PHP)

It’s just a pity about property valuations

Primary Health Properties has released results for the year ended December. This is a large UK healthcare property fund that recently added a JSE listing. Liquidity has been pretty light, but should improve over time.

The numbers for the year look respectable for hard currency returns. Net rental income was up 2.9% and HEPS increased by 8.3%. The dividend per share increased by 3%.

Property valuations did come under pressure though, with net tangible assets per share down 3.3%. That does rather blunt the benefit of growth in earnings.

The average cost of debt ticked up slightly to 3.4% and so did the loan-to-value ratio, up from 47.0% to 48.1%.

In a separate announcement, the company let the market know that they’ve acquired a clinic in Ireland for €22 million at an earnings yield of 7.1%. The property is fully occupied and leased, with a remaining term of just over 12 years and fixed rental uplifts in 2027 and 2032. That does sound like a solid deal at an attractive yield for the underlying country and sector exposure.

Cause for celebration at Sabvest (JSE: SBP)

The investment group’s portfolio did well in 2024

Sabvest released a trading statement dealing with the year ended December 2024. The company has correctly identified net asset value per share as the performance measure for trading statement purposes. There are still investment holding companies out there using HEPS as the trigger for trading statements, an approach that is as useless as it is frustrating.

Sabvest has a strong story to tell, with net asset value per share up by between 17% and 21% for the year. This takes it to between R127.95 and R132.33. With the share price currently at R90 after closing 4% higher on the day, there’s still a substantial discount to net asset value at play here. This is an issue that plagues all local investment holding companies.

Safari Investments had a solid year (and a bit) of growth (JSE: SAR)

Take note of the impact of the change to the year end

Safari Investments has released results for the six months to December 2024. The nuance here is that due to a change in the company’s year end, the comparable period is the six months to September 2023. Although it’s not a huge difference, a quarter of inflation etc. is a factor.

The numbers are strong, with operating profit up 9% and the investment property value up 10.7%. The SA REIT net asset value per share increased by 14.7% to R10.55 per share. With the share price currently at R6.75, there’s quite a discount to NAV at play here.

The interim distribution is 34 cents per share. If we take the simplified approach of doubling this number, that’s 68 cents for the year and thus a forward yield of roughly 10%. This is why there’s such a discount to NAV, as the market is pricing the company off its dividend rather than its NAV. This is standard in the property industry.

A tough year for Thungela (JSE: TGA)

And deeper exposure to Australia

Thungela released a trading statement for the year ended December 2024. Coal had a difficult time in that year, as evidenced by a drop in HEPS of between 24% and 31% at Thungela.

This was despite a reduction in the total number of shares outstanding, so the underlying pressure on the business was slightly worse than the HEPS range implies.

With results due for release on 17 March, investors will have to wait a couple of weeks to get full details. In the meantime, Thungela separately announced that the acquisition of Bowen’s 15% interest in Ensham in Australia for AUD48 million has now met all conditions precedent and the deal has closed. This deal is of course part of ongoing efforts to diversify the group and reduce reliance on key risks like South African infrastructure.

Nibbles:

  • Director dealings:
    • There’s yet more buying of Tiger Brands (JSE: TBS) shares by the CEO and this time he’s really put the hammer down. Across two tranches, the latest purchases add up to R3.3 million.
    • The chairman of Primary Health Properties (JSE: PHP) bought shares in the company worth around R540k.
    • A director of Kumba Iron Ore (JSE: KIO) bought shares worth R500k.
    • An associate of CEO Warren Wheatley bought shares in Altvest (JSE: ALV) worth R39k.
  • Barloworld’s (JSE: BAW) standby offer is open for acceptance until at least 14 April. It all comes down to whether they reach a reasonable level of acceptances, in which case the offerors will be happy to pick up the shares. Technically, unless there’s a 90% acceptance rate, the offer will lapse. The offerors do have the discretion to decrease this acceptance rate and move ahead with buying shares that are tendered by shareholders. To get more details, you can refer to this press release by the company.
  • This should be a big month for Orion Minerals (JSE: ORN), with the company expecting to be able to publish the results of the New Okiep Mining Definitive Feasibility Study (DFS) during the week of 10th March, followed by the Prieska Copper Zinc Mine DFS in the final week of March. These documents are the foundation for further capital raising activities.
  • Kudos to Equites Property Fund (JSE: EQU) for their approach to engaging with investors. They’ve released a follow-up presentation dealing with the Q&A from the pre-close presentation. Aside from more details on the UK portfolio, they also indicate that the cost of debt in South Africa is expected to decrease in FY26 by between 10 and 15 basis points depending on rate cuts and other factors. Finally, there’s more detail on the land holdings in South Africa, with land parcels being a key feature of most logistics funds that need a lot of space in exactly the right place for warehouse and DC developments. You’ll find the presentation here.
  • Labat Africa (JSE: LAB) has gone through major changes and is turning into an IT company. They still needed to catch up on outstanding financial reports though, so they’ve only just released results for the six months to November 2024 (and corrected some errors in the comparative period). HEPS jumped from 0.78 cents to 1.29 cents, but those results are not a great reflection of the future of the group and the recent strategic acquisition that was made.
  • Mantengu Mining (JSE: MCZ) announced the appointment of Shamim Mansoor as Chief Investment Officer at the company. She is highly experienced in the sector, with tons of experience at the sharp end of finance.
  • The disposal by Stefanutti Stocks (JSE: SSK) of SS-Construções Limitada in Mozambique has been delayed once more. The parties have agreed to extend the date for fulfilment of conditions precedent to 31 March 2025.
  • Rex Trueform (JSE: RTO) is further increasing its stake in Belper Investments. They are buying another 5.72% in the industrial property company, which means the stake will be up to 84.74%. The deal is worth R3.86 million, payable in monthly instalments from March to August 2025. This is also relevant to African and Overseas Enterprises (JSE: AOO) shareholders, as Rex Trueform is a 50.57% subsidiary of that company.
  • Sable Exploration and Mining Limited (JSE: SXM) has entered into a memorandum of understanding with Boo Wa Ndo Holdings for the acquisition of a 55% interest in the prospecting rights and mining permits over two properties in Limpopo. The properties have vanadium, titanium and magnetite resources. Sable will pay for this by issuing 6 million shares at R1 per share.
  • Visual International (JSE: VIS), a true example of a penny stock with a share price of just R0.02, has announced the acquisition of Stellendale Gardens. This is a long-outstanding deal that was awaiting the approval for rezoning from agriculture to business. The purchase price of R28 million is being offset against a R26 million loan receivable from a related party, so there’s a R2 million gain for the company. They will now look for partners to help with this mixed-use development.
  • AYO Technology (JSE: AYO) has once again missed a deadline, this time for the release of the financials that it told the market would come on 28th February. These financials are for the year ended August 2024, so the listing has been suspended by the JSE for lack of compliance. The delay relates to the auditor’s engagement quality control review. AYO has now opted to just promise the market that they are doing their best to finalise it, rather than committing to another date for release.
  • Salungano Group (JSE: SLG) has been suspended from trading by the JSE since August 2023. They are working on catching up on the financial reporting backlog, with results for the year to March 2024 expected to be released by the end of March 2025. The missing interims for the six months to September 2024 should be released shortly thereafter, with the suspension from trading expected to be lifted in mid-April.
  • African Dawn Capital (JSE: ADW) has managed to scratch around enough to find an auditor, with CBS Group appointed as the external auditor of the company.

Watch out for the wellness wave

Dominique Olivier
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Watch out for the wellness wave

For decades, alcohol and cigarettes have been the go-tos for taking the edge off life’s chaos. With Gen Z opting out of these vices, Big Alcohol and Big Tobacco are scrambling to stay relevant in a world where wellness is the new rebellion.

Every once in a while, I see a trend on TikTok that makes me question the general trajectory that humanity is on. The latest example is something called “rawdogging” flights. It sounds like a filthy innuendo, but the reality is far more dull: it means that people (usually young people) are choosing to sit through long-haul flights with zero distractions or comforts. No movies, no naps, no music, no books, no snacks – sometimes not even water. Just pure, unfiltered existence, staring at the back of a seat for 7 hours or more. For Gen Z, rawdogging is a flex, a test of mental endurance, and (to the horror of airline marketing teams) a growing badge of honour.

The first time I saw a TikTokker bragging about rawdogging an overnight flight, I was confused about why anybody would choose to do something like this – and why it was being applauded. But then I thought about another trend that’s become associated with Gen Z, and two circles converged to form an unexpected Venn diagram.

Think about it: this is the same generation that is making headlines for drinking and smoking substantially less than their predecessors, despite the fact that they’re living through one major event after another. Take your pick – a global pandemic, massive geopolitical unrest, a housing crisis, skyrocketing costs of living, massive job disruption caused by AI – and that’s all just in the last five years. To be fair, no world wars though. We will firmly hope it stays that way!

Past generations reached for a drink or a cigarette (or a Prozac) to take the edge off stress, social anxiety, or existential dread in the same way that most of us would tune into on-flight entertainment. But Gen Z? They’re essentially rawdogging life – no alcohol, no cigarettes, no chemical crutches. Instead of numbing out, they’re opting in: cold plunges over cocktails, breathwork over bar tabs, functional mushrooms over a pack of Marlboro Reds.

For the alcohol and tobacco industries, this shift is a crisis. After decades of selling their products as the ultimate coping mechanisms, they now have to pitch to a generation that sees water bottles as aspirational (Stanley cups, anyone?). So what does this mean for the future of these industries? And how long until Big Tobacco pivots into smoke-free meditation retreats?

What do the numbers say?

For decades, drinking (often to excess) has been a rite of passage into adulthood, especially in Western cultures. From sneaking cheap booze as teenagers to using alcohol as a social lubricant well into adulthood, previous generations have treated drinking as a fundamental part of fun, friendship, and even professional networking. Think of weddings, work functions, nights out on the town – few social settings have been complete without a drink in hand.

But Gen Z is rewriting that script. They’re drinking less, drinking later, or not drinking at all, and the numbers prove it. The UK’s largest recent study on drinking habits found that in 2019, 16-to-25-year-olds were the most likely of all generations to be teetotallers, with 26% steering clear of alcohol entirely. In the US, the number of college-age Americans who don’t drink jumped from 20% to 28% in just a decade. Youth drinking rates have also plummeted across Southern hemisphere countries like Australia and New Zealand. During lockdown, 44% of Gen Z Australians reported cutting back on alcohol, more than double the rate of any other generation. In New Zealand, binge drinking among young people has dropped by more than half since 2001, and the downward trend hasn’t slowed.  

And that’s just alcohol. Cigarettes are facing an even steeper fall from grace.

According to Gallup’s latest poll, smoking rates among American adults have dropped sharply, and Gen Z is leading the decline. Back in the early 2000s, 35% of Americans under 30 admitted to smoking cigarettes. Today, that number has plummeted to just 6%.

While Gen Z is the least likely generation to smoke cigarettes, they’re the most likely to vape. Gallup’s data shows that 18% of 18-to-29-year-olds use e-cigarettes, compared to just 1% of those 65 and older. In other words, while the classic cigarette is becoming a relic of the past, the nicotine habit itself isn’t exactly disappearing; it’s just changing form. Still, the total number of nicotine users under 35 today is lower than it was 25 years ago. 

Why is this happening?

There’s no single reason why Gen Z is turning away from drinking and smoking; it’s more like a combination of growing up in a high-stress and always-on world, having more information at their fingertips, and being generally more risk-averse than their predecessors.

They’ve seen the warnings, heard the horror stories, and don’t need to learn the hard way. With endless research just a Google search away, entire TikTok communities like #SoberTok, and open conversations about addiction and mental health, Gen Z has a far more nuanced understanding of what alcohol and nicotine do to the body and mind.

It’s not just about physical health – many simply don’t like the idea of being drunk. A 2019 Google study found that 60% of UK Gen Z associate drinking with a loss of control. Unlike past generations, who could afford the occasional night of debauchery without permanent consequences, Gen Z knows that every questionable decision can be documented and broadcast online in seconds. 49% admit that their online image is always in the back of their mind when they’re out drinking. And with increasing reports of drink-spiking, especially among young women, the idea of a carefree night out feels more like a gamble than a good time.

So if Gen Z aren’t spending their disposable income on booze and cigarettes, then where is that cash going? You guessed it: wellness. According to McKinsey’s latest Future of Wellness research, Gen Z and millennials are leading the charge when it comes to spending on wellness, outpacing older generations in everything from fitness to mental health. The survey, which polled over 5,000 consumers across China, the UK, and the US, found that Gen Z is particularly drawn to wellness purchases that focus on appearance and overall health. They’re also shelling out more than their elders on mindfulness-related products like meditation apps, therapy sessions, and wellness retreats (which, given their well-documented mental health struggles and the state of the world in general, isn’t exactly shocking).

56% of Gen Z consumers in the US say fitness is a “very high priority”, compared to just 40% of US consumers overall. And it’s not just about looking good now: young people are already investing in preventative health solutions, caring about longevity and healthy aging in ways that were once reserved for Boomers browsing the supplement aisle.

Raise a (water) glass to tomorrow

At first glance, the decline of drinking and smoking might seem like a problem only for alcohol and tobacco companies. But for investors, it’s a reminder that market dominance is never a guarantee, especially when consumer priorities are shifting. A company might look solid today (and for fifty years leading up to today), but if its core audience is aging out and the next generation isn’t buying in, those numbers won’t stay impressive for long. Does that verse sound familiar, De Beers?

Smart investors don’t just look at where a business is now, they look at where it’s going. Who is the future customer? What pressures are shaping their choices? And most importantly, is the business evolving to meet them where they are? Gen Z has made it clear that they’re swapping their party nights for pilates, thank you very much. Businesses that see this shift as an opportunity, rather than a crisis, will be the ones still standing in the decades to come.

Editor’s note: perhaps that position you’ve got in British American Tobacco or AB InBev isn’t so “defensive” after all, is it? I don’t hold a stake in either company for all the reasons that Dominique set out in this excellent piece.

About the author: Dominique Olivier

Dominique Olivier is the founder of human.writer, where she uses her love of storytelling and ideation to help brands solve problems.

She is a weekly columnist in Ghost Mail and collaborates with The Finance Ghost on Ghost Mail Weekender, a Sunday publication designed to help you be more interesting. She now also writes a regular column for Daily Maverick.

Dominique can be reached on LinkedIn here.

GHOST BITES (AfroCentric | Fortress | Harmony Gold | Impala Platinum | KAP | Life Healthcare | Motus | MTN | OUTsurance | Sanlam | Shaftesbury | Spar | Truworths)

The Finance Ghost
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GHOST BITES (AfroCentric | Fortress | Harmony Gold | Impala Platinum | KAP | Life Healthcare | Motus | MTN | OUTsurance | Sanlam | Shaftesbury | Spar | Truworths)

AfroCentric suffered a sharp drop in HEPS (JSE: ACT)

And no, the market didn’t like it

AfroCentric Investment Corporation released a trading statement dealing with the six months to December 2024. The period is particularly important, as the financial year has changed and hence the comparison is being made to the year ended June 2024.

Unfortunately, comparing six months to twelve months isn’t the reason for the decrease in earnings. With HEPS down by between 85.6% and 95.6%, there’s clearly a lot more at play here.

The company notes a number of factors, ranging from investment in growth through to trading conditions in the retail cluster, leading to margin erosion and impairments of goodwill as well. Of course, impairments don’t affect HEPS, but they do explain why earnings per share (EPS) has slipped into a loss position.

All the worries about life-after-REIT for Fortress feel so long ago (JSE: FFB)

The fund is flying

Fortress Real Estate posted excellent numbers for the six months to December 2024. The fund has a portfolio of logistics properties in South Africa as well as Central and Eastern Europe (CEE), as well as retail properties in South Africa. For further exposure to CEE, they have a huge stake in NEPI Rockcastle, one of the best funds on the local market – although NEPI’s growth in earnings on a per share basis are under pressure lately based on recent capital raising activities.

Still, with distributable earnings per share up 29.8% at Fortress, things are going well. This is being supported by metrics such as like-for-like net operating income growth of 9.2% in the retail portfolio and 4.7% in the logistics portfolio. They sold R259.2 million in office properties in the period and they are looking to sell the industrial portfolio. The remaining office portfolio of R897 million is only 1.6% of total assets, so it’s a pretty clean overall picture right now.

Remember that Fortress isn’t a REIT, so distributions are taxed as normal dividends rather than at marginal income tax rates. When you compare its distribution yield to other funds, keep in mind that you’re most likely paying more tax on distributions from REITs, so the pre-tax numbers aren’t directly comparable.

Also, Fortress is continuing with its plan of offering shareholders an option to receive NEPI Rockcastle shares in lieu of cash dividends.

Looking ahead, guidance for FY25 was revised to distributable earnings of R1.925 billion. That’s significantly up from previous guidance of R1.78 billion and shows further expected growth on the FY24 number of R1.79 billion. They basically ran a full year ahead of expectations!

In a notable change to the board, Robin Lockhart-Ross will retire as independent non-executive chairman. Herman Bosman, currently the lead independent director, will be taking on the role.

As you might expect, earnings at Harmony Gold are up (JSE: HAR)

Cost pressures did blunt some of the benefit of higher prices, though

Harmony Gold released a trading statement for the six months to December 2024. Thanks to the average gold price increasing by 23% in rand terms, HEPS (also in rands) increased by between 24% and 42%.

If you’ve been following some of the other names in the sector, you might have expected to see a more impressive jump in earnings based on the price increase. Harmony’s year would’ve been better if not for above-inflation increases in labour and electricity costs (which they refer to as “planned” increases) as well as higher taxes.

I’m not sure what to make of the tax comment. It’s obvious that taxes are higher if revenue is higher, so I’ll wait to see what the effective tax rate (i.e. the percentage) looks like when detailed results are released on 4th March.

Impala Platinum will be hoping for better PGM prices going forwards (JSE: IMP)

Profits suffered a nasty drop in the interim period

Impala Platinum released results for the six months to December 2024. Refined and saleable 6E production increased by 2% and 6E sales volumes were up 5%. 6E unit costs were up 3%. They therefore put in a decent performance on the metrics that are within their control. Alas, rand revenue per 6E ounce fell by 8%, so the income statement is still a sad and sorry tale.

With EBITDA down 23.4%, there wasn’t much chance of survival for HEPS. Indeed, it dropped by a nasty 43.6%.

At least free cash flow was a highlight, improving drastically from an outflow of R4.8 billion to an inflow of R639 million. A large decrease in capital was a helpful contributor here. Of course, celebrating a 59% reduction in expansion capital is a fairly self-defeating approach, as the reason for less expansion is because PGM markets are so depressed.

Full-year guidance has been maintained for production and unit cost guidance. They expect to come in below guidance on capital expenditure, so that should be a further boost to free cash flow.

The ramp-up of the new PG Bison line hurt KAP (JSE: KAP)

They need a strong second half here

KAP released results for the six months to December 2024 and they don’t represent a strong start to the year. Revenue increased by just 2% at group level and EBITDA fell by 4%. By the time you reach HEPS, it’s a drop of 21%. Cash generated from operations wasn’t any better, down 18%.

As always, you need to look into the segments at KAP to see what is really going on. At PG Bison, the largest profit contributor, revenue was up 5% and operating profit fell by 28% due to the inefficiencies and costs associated with the ramp-up of the new MDF line. They’ve spent R2 billion on the thing and they need to find markets to absorb the new capacity. They think it will take four years to reach the point where they are selling its full capacity! One really has to wonder about the capital allocation model here and whether they aren’t taking on too much risk.

Over at Safripol, revenue increased 10% and operating profit jumped by 58%, so there’s a highlight for you. They had a decent production period with fewer disruptions and the results are clear to see in the numbers. They expect the global polymer industry to be depressed until at least 2027.

Thanks to a period in which profit grew by 22% while revenue shrank by 2%, Unitrans is now the second largest profit contributor in the group. Initiatives like the discontinuation of loss-making contracts made a material difference here.

Alas, there’s no good news at Feltex. Local vehicle OEM assembly volumes fell by 19% and hence Feltex’s revenue dropped 16%. Operating profit nosedived 69%. They expect better local production in the second half of the year.

Sleep Group (previously Restonic) increased revenue by 4% and operating profit by 12%. Strategies like changes to the product range have helped to bring the margins up.

This doesn’t exactly sound like the kind of group that should be incubating a start-up, now does it? Despite this, Optix is sitting there with R294 million in revenue and an operating loss of R18 million. In the comparable period, they managed to break even on R285 million in revenue. If this is the kind of business that needs years of investment with little to show for it in profits (and clearly it is), then KAP isn’t the right owner for it.

The focus in the second half of the year is on debt reduction, particularly now that the major capital projects have been completed. It’s a pity that it’s going to take so long to make the most of those projects, as the market isn’t famous for being patient with JSE-listed mid-caps. The share price is up 16% over 12 months, but down 44% over 3 years.

Life Healthcare released the circular for the LMI disposal (JSE: LHC)

This is a Category 1 transaction, so shareholders need to pay attention

The back-story here is pretty interesting. Back in 2018, Life Healthcare invested in Alliance Medical Group (AMG) and acquired what became Life Molecular Imaging (LMI) as part of it. Over time, Life invested $66 million in LMI to commercialise the NeuraCeq product. In early 2024, Life disposed of AMG and returned R8.8 billion to shareholders as a special dividend.

They decided to hang onto LMI at the time. A sub-licence agreement was entered into with Lantheus, leading to an up-front payment of $36 million that was very helpful to Life’s earnings. But here’s the interesting part: while conducting a due diligence, Lantheus decided that they wanted to acquire all of LMI.

Given the capital requirements of LMI going forward and how different the business is to the rest of what Life does, they are not really natural owners of this asset. The board therefore decided to say yes to Lantheus, leading to the release of this Category 1 circular.

Aside from a vast amount of information on Life’s remaining business, the circular notes that the selling price for LMI is based on a cash-free, debt-free enterprise value of $350 million, with further adjustments for working capital. This excludes earn-out payments from 2027 to 2029 based on net sales of Neuraceq in the United States, with Life entitled to 23% of such sales capped at $225 million in total over three years. There’s also a potential milestone payment of $125 million in NeuraCeq global net sales exceed $1.25 billion in any calendar year until 2034. Finally, there’s another milestone payment of $50 million if the sales of three of LMI’s pipeline products exceeds $500 million in any single calendar year until 2034.

As you can see, this is a complicated deal that gives Life a juicy up-front amount and exposure to the long-term success of the product.

Complex deals come with massive bills from advisors. Just take a look at this:

That’s the market cap of a JSE small-cap, eaten up entirely by fees! International dealmaking is where the advisors make the serious cash.

The shareholder meeting is scheduled for 2nd April. You’ll find the circular here.

The markets seems to have been caught off guard by Motus (JSE: MTH)

The share price closed 14% lower in response to results

The car industry is going through a tough time. Manufacturers are suffering and market share is changing rapidly. The downstream impact on this is severe, particularly for businesses that nailed their colours to the mast in the form of having dealership networks representing particular brands. This is exactly why WeBuyCars is my preferred company in the sector, as they are brand agonostic. They literally couldn’t care less whether you buy a Haval or a Ford from them.

As for Motus, they are sitting squarely in the cross-hairs of the disruptive forces in this sector. Under the circumstances, I think they actually did pretty well to grow HEPS by 3% in a period where revenue fell by 2%. Despite resilient interim results, the market had a little panic and the share price closed 14% lower. Truly, I have no idea why anyone was expecting growth here.

With roughly 20% market share in South African new passenger vehicle sales, Motus is largely beholden to the broader consumer spending story. They note that the second quarter (i.e. the end of calendar 2024) was far better than the first quarter, which suggests that some of the consumer spending we saw at the likes of Lewis in furniture also filtered through into Motus. Discretionary spending had a strong finish to the year in South Africa.

This gave Motus an opportunity to reduce inventory and net debt, which would’ve done wonders for the HEPS performance.

It’s important to remember how diversified Motus is. They generated 55% of revenue and 65% of EBITDA from South Africa, with the rest coming from the UK, Australia and Asia. The UK is problematic, with weak demand and regulations requiring OEMs to show an increasing percentage of new vehicle sales as “new energy” vehicles. They are trying hard over there to force consumers into electric cars. The Australia market at least showed some growth to growth levels of volumes in new cars.

With all said and done, the interim dividend increased by 2% to 240 cents per share. The share price has given up basically its entire gain over the past 12 months:

MTN’s earnings have plummeted (JSE: MTN)

Forex remains a factor, but it doesn’t explain the year-on-year move

MTN released a trading statement for the year ended December 2024. Unsurprisingly, forex losses continue to plague the group. What surprises me though is that the impact this year is actually significantly lower than the comparable year, yet HEPS collapsed anyway.

They expect HEPS to be between 59% and 79% lower. In reality, this means a drop by between 186 cents and 249 cents. Now, in the comparable year, they had an impact of 888 cents on HEPS from “non-operational” items like forex, hyperinflation and other charges. When you’re choosing to operate in countries like Nigeria, I’m afraid those inverted commas are necessary. Without even going down that rabbit hole, the impact on the current period of the same items was 718 cents.

This means that year-on-year, HEPS is 170 cents better off from these items. This shows you that there’s a sizable drop in earnings due to other factors, much of which came through in the first half of the year. Although MTN has noted improved performance in the second half of the year, they are clearly still facing issues.

Notably, the tariff adjustments by regulators in Nigeria have started to be implemented by MTN Nigeria. This should help with the unit economics of the business in that country.

Detailed results are due for release on 17 March.

OUTsurance shareholders are definitely going to get something out (JSE: OUT)

Even the short-term book posted strong earnings growth

OUTsurance Group released a trading statement dealing with the six months to December 2024 and it didn’t disappoint. Group HEPS is expected to jump by between 42% and 48%, a particularly strong performance even by current sector standards.

The short-term operations in South Africa are the largest contributor to group earnings and they grew by between 24% and 30%. Next up in terms of size of contribution is Youi Group in Australia, one of the very few examples of a South African corporate finding success in that market, with earnings more than doubling! In both cases, much lower natural perils claims did wonders for underwriting profits.

OUTsurance Life also posted earnings that grew by more than 100%, so this wasn’t just a short-term insurance celebration.

The start-up losses at OUTsurance Ireland are in line with expectations. The group has a track record of entering markets and doing things the “hard” way by building up from zero. In reality, it’s proven to be a better way to do things than the standard approach by SA corporates of overpaying for offshore deals.

When one of the drags on performance is the performance of the employee share scheme in response to the extent of share price growth, you know things are going well.

Detailed results are due for release on 14 March.

Sanlam had a lovely time in 2024 (JSE: SLM)

Earnings growth is excellent

As we saw at sector peer Momentum earlier in the week, times are good in the life insurance space. Sanlam has added strongly to that narrative, with a trading statement for the year ended December 2024 reflecting a juicy increase in HEPS of between 30% and 40%.

This puts the company on an expected range of 913 to 983 cents. At the current share price of R88 and using the middle of that guidance, the P/E is thus 9.3x. You can buy some excellent companies on the JSE at modest multiples.

There was a once-off in these numbers in the form of a reinsurance recapture fee after the conclusion of the funeral insurance joint venture with Capitec. Net operational earnings per share excluding that fee grew by between 20% and 30%, so there was still plenty of good stuff in the core business to support these earnings.

One of the factors was an improvement in investment returns, with the markets giving life insurers a boost in the past year as they invested their reserves.

Sanlam’s share price is up roughly 24% in the past year.

Shaftesbury is having a grand old time in London’s West End (JSE: SHC)

Life after the Capital & Counties merger is going well, it seems

Shaftesbury is a perfect example of how you can give your money a passport via the JSE. The fund is entirely focused on the UK property market and specifically London’s West End. If you’ve ever had the pleasure of walking around that part of London (note: preferably in their summertime), it’s quite a thing.

Despite some pressure on valuation yields, there was enough growth in rentals to support a 4.5% increase in the portfolio valuation. There was also sufficient cash flow for the total dividend for the year to be up 11%.

Other metrics are also encouraging, like positive reversions in rentals and decent growth in underlying tenant sales. To make sure that metrics keep going the right way, they’ve been busy recycling capital. Since the merger, they’ve completed £246.6 million in disposals and reinvested £86 million in acquisitions. The loan-to-value ratio is down from 31% to a very comfortable 27%.

Despite the increase in net tangible assets per share, the share price on the JSE is down 8.4% in the past year. The strengthening of the rand is largely to blame for that.

Spar’s Swiss headache is getting worse (JSE: SPP)

And Southern Africa isn’t exactly shooting the lights out

In a trading update for the 18 weeks to 31 January, Spar reported a decline in total sales of 1.6%. A 9% drop in Switzerland is a major worry and a 6.7% decrease in BWG Group (Ireland and South West England) isn’t far behind. With growth of just 1.6% in Southern Africa, this is a disappointing set of numbers.

Even more concerningly, grocery was up just 0.6% and TOPS grew 1.9%. The core grocery business is putting in an dismal performance. It looks like Pick n Pay’s troubles are being mopped up entirely by Shoprite. This is further evidenced by Spar’s comments that their middle- and higher-end stores had subdued growth. Checkers and Woolworths remain the market winners.

Oddly, aside from 13.3% growth in SPAR Health off a small base, Build it was the highlight with 7.3% growth. That’s certainly a lot more than we’ve seen at the likes of Cashbuild recently, so they are doing something right there.

The top-line performance is uninspiring, but Spar has noted that margins are going the right way based on lower promotional activity and other initiatives. We will have to wait and see.

As for the offshore stuff, any hopes that the disposal of the business in Poland would make the end of the troubles have been dispelled. BWG Group’s sales are down 1.6% in EUR terms, with the blame put on consumer spending. SPAR Switzerland suffered a 5.2% decrease in turnover in CHF terms. Of course, a stronger rand has made these numbers look worse in reporting currency.

Interim results for the six months ending March will be released on 4th June. In the meantime, the market dished out a 7% hiding. Still, the share price is up 35% over 12 months.

Truworths’ interim dividend dipped thanks to weak performance (JSE: TRU)

Margins are under real pressure here

Truworths has released its interim results for the 26 weeks ended 29 December 2024. As we already knew from previous updates, they weren’t very good. In fact, they were poor.

Sales of merchandise increased by just 2.5%. You would therefore hope that they locked in stronger margins, with higher prices leading to depressed sales. Alas, gross margin fell from 53.6% to 51.8%. Not only were sales disappointing, but so too were the margins at which they were achieved.

Naturally, things don’t improve from there. Operating margin fell by 200 basis points to 22.5%. HEPS decreased by 4.6% and the interim dividend followed suit, down 4.5%. Don’t be fooled by a magical uplift in cash generated from operations, as the end of the reporting period was before month-end payments went off.

Office UK managed sales growth of 11.3% in local currency in this period and Truworths Africa was down 1.1%, so it’s pretty clear where the improvements need to be made. Cute stats like 38% growth in online sales in SA don’t make up for the overall number, particularly when higher promotional activity didn’t translate into sales.

Nibbles:

  • Director dealings:
    • An associate of a director of Afrimat (JSE: AFT) sold shares worth just over R2 million.
    • A director of a major subsidiary of Altron (JSE: AEL) sold shares worth a total of R1.2 million. The announcement doesn’t explicitly say that this is the taxable portion of the share awards, so I assume that it isn’t.
    • The CEO of RH Bophelo Limited (JSE: RHB) bought shares worth R27k.
    • Here’s an unusual type of director dealings for you, with Afine Investments (JSE: ANI) noting that a trust associated with a non-executive director sold its shares in a company which in turn holds 77.78% in Afine. The sale was one level above the company and so no Afine shares changed hands. The announcement doesn’t clarify the stake that the trust held in the company further up the chain, nor does it give a value of the sale.
  • Kore Potash (JSE: KP2) has released the highlights of its optimised Definitive Feasibility Study (DFS). They assume a construction start date of 1 January 2026, with a 43-month construction period. The initial life-of-mine is 23 years and they believe that further exploratory work could extend this. They expect an average EBITDA margin of 74% and a post-tax real IRR of 18% on an ungeared basis, measured in dollars. This shows you the kind of returns that can be achieved in frontier markets. Of course, the timing of this study is important as the company is looking to finalise the funding required for the project.
  • Conduit Capital (JSE: CND) renewed its cautionary announcement based on ongoing engagement with the liquidator of CICL. The company remains a couple of years behind on publishing audited annual results due to the impact on CICL as its main subsidiary.
  • London Finance and Investment Group (JSE: LNF) has decided to go ahead with a return of capital and a delisting of the company. They expect shareholders to receive 71 pence in cash per share. If all goes to plan, they intend to wrap it up by early May.

Who’s doing what this week in the South African M&A space?

Marylou Greig
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Who’s doing what this week in the South African M&A space?

Exchange-Listed Companies

This week, shareholders of Barloworld made known their feelings of the proposed buyout of the company by the current CEO and the Zahid Group and the perceived governance issues surrounding the takeover process, by failing to pass a number of special resolutions necessary in order to approve the scheme. The company needed the support of 75% of shareholders to push the deal through but managed to garner just 36.63%. This has triggered the standby offer as per the company’s circular released in January. The company will issue the timetable applicable to the standby offer in the next few days.

Old Mutual Infrastructure Investment Trust Fund (Malawi) is to acquire a 25% stake in Golomoti JCM Solar Corporation from the Private infrastructure Development Group’s InfraCo Africa. Financial details were not disclosed.

Prosus has made an offer to Just Eat Takeaway.com shareholders to acquire 100% of the leading on-line delivery company for an all-cash offer of €20.30 per share, valuing the company at €4,1 billion. The offer represents a premium of 63% to the company’s closing share price of 21 February 2025, and a 49% premium over the three-month VWAP. The offer consideration will be funded through cash resources.

The Programmatic JV – a joint venture between Irongate (in which Burstone has a 50% shareholding) and TP Angelo Gordon, has concluded the acquisition of A$280 million of Australian industrial logistics assets in New South Wales and Queensland for an equity tag of A$133 million for the four assets. The parties committed A$200 million to the joint venture with the aim to upsize upon successful deployment.

Sibanye-Stillwater has updated shareholders that it has made the decision not to proceed with the Rhyolite Ridge Lithium-Boron Project under the joint venture with ioneer. The establishment of the joint venture announced in September 2021 was subject to various conditions precedent. Following a due diligence by Sibanye on the technical summary and updated reports, the project did not meet its investment hurdle rates.

Cilo Cybin (CC) has been granted a time extension of 7 April 2025 for the distribution of the circular to shareholders. In December 2024, CC announced the proposed acquisition of Cilo Cybin Pharmaceutical. The acquisition constitutes an acquisition of assets, a related party transaction and a reverse takeover for the company.

Unlisted Companies

Clearwater Capital, a private equity firm based in KwaZulu-Natal, has acquired SnoLink Logistics from Etlin International’s storage and logistics arm. Clearwater Capital aims to expand the logistics provider’s national footprint. SnoLink specialises in solutions for frozen, chilled and ambient temperature-controlled product warehousing, port-clearing services and long-haul distribution to retailers.

Local venture capital group Havaíc has exited its investment in emergency services technology provider RapidDeploy. The investment, which was first made in 2022, was followed by further investments in 2023 and 2024. The exit, the value of which is undisclosed, is to NYSE-listed US technology group Motorola Solutions.

DealMakers is SA’s quarterly M&A publication.
www.dealmakerssouthafrica.com

Weekly corporate finance activity by SA exchange-listed companies

Marylou Greig
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Weekly corporate finance activity by SA exchange-listed companies

In a move to increase its exposure to SA Corporate Real Estate (SAC), Castleview Property Fund acquired 48,681,480 SAC shares at an average purchase price of R2.85 per share for an aggregate consideration of R138,88 million. The purchase was executed by way of on-market block trades on the JSE.

Mantengu Mining has issued and will list, 24,881,093 shares on the JSE in terms of its R500 million drawdown facility announced in April 2024.

In November 2024 London Finance & Investment Group plc announced the sale of its liquid investments and that it proposed to cease activities in early 2025 by way of returning capital to shareholders and delisting the company from the LSE and JSE. The company has now confirmed shareholders will receive an estimated 71 pence in cash for each ordinary share held. The company has 31,287,479 shares in issue of which 80,000 are not listed. It is expected that the company’s listings will be terminated in early May 2025.

On 26 February the JSE notified Ayo Technology shareholders that it had suspended the company’s listing with immediate effect following the failure, as per the JSE Listing Requirements, to publish its annual report for the year-end August 2024 within the prescribed period.

This week the following companies repurchased shares:

Netcare concluded an intra-group repurchase with subsidiary Netcare Hospital Group in terms of which Netcare acquired 25,082,254 ordinary shares at a price of R13.46 per share.

Transpaco has repurchased one million shares, representing 3.47% of the company’s issued share capital. The shares were repurchased at an average of R37.00 per share, funded from cash resources. The shares will be delisted and cancelled.

In its annual financial statements released in August 2024, South32 announced that it would increase its capital management programme by US$200 million, to be returned via an on-market share buy-back. This week 324,074 shares were repurchased at an aggregate cost of A$1,18 million.

On 19 February 2025, the Glencore plc announced the commencement of a new US$1 billion share buyback programme, with the intended completion by the time of the Group’s interim results announcement in August 2025. This week the company repurchased 21,500,000 shares at an average price per share of £3.26.

Schroder European Real Estate Trust plc acquired a further 85,200 shares this week at a price of 66 pence per share for an aggregate £56,232. The shares will be held in Treasury.

In October 2024, Anheuser-Busch InBev announced a US$2 billion share buy-back programme to be executed within the next 12 months which will result in the repurchase of c.31,7 million shares. The shares acquired will be kept as treasury shares to fulfil future share delivery commitments under the group’s stock ownership plans. During the period 17 – 21 February 2025, the group repurchased 348,000 shares for €17,71 million.

Hammerson plc continued with its programme to purchase its ordinary shares up to a maximum consideration of £140 million. The sole purpose of the buyback programme is to reduce the company’s share capital. This week the company repurchased 334,920 shares at an average price per share of 287 pence.

In line with its share buyback programme announced in March 2024, British American Tobacco plc this week repurchased a further 572,899 shares at an average price of £30.15 per share for an aggregate £17,28 million.

During the period February 17 – 21 2025, Prosus repurchased a further 5,826,415 Prosus shares for an aggregate €262,35 million and Naspers, a further 450,990 Naspers shares for a total consideration of R2,18 billion.

Five companies issued a profit warning this week: Grindrod, African Rainbow Minerals, Oceana, Afrocentric Investment and MTN.

During the week, two companies issued cautionaries: Choppies Enterprises and Conduit Capital.

DealMakers is SA’s M&A publication.
www.dealmakerssouthafrica.com

Who’s doing what in the African M&A and debt financing space?

Vanessa Aitken
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0
Who’s doing what in the African M&A and debt financing space?

DealMakers AFRICA

Visa, the German development finance institution DEG, and existing investors, Speedinvest and Cathay AfricInvest Innovation Fund have invested in Ghana’s Oze, a provider of AI-powered digital lending solutions for financial institutions and SMEs. The financial terms of the investment were not disclosed, but the funding will be used to scale the fintech’s Lending Management System. Oze currently operates in Ghana, Nigeria, Guinea, Benin, Rwanda, Madagascar, Zimbabwe and Lesotho.

UK development finance institute, British International Investment, has announced a US$100 million Tier 2 capital facility to KCB Bank Kenya to increase lending capacity to climate-related projects and women-led SMEs.

Pelangio Exploration has announced a strategic agreement with FJ Minerals to acquire up to an 83% interest in the Nkosuo Project in Ghana’s Ashanti Region. The project is situated adjacent to Pelengio’s Manfo Project and the agreement stipulates that upon transferring a 17% stake in in Manfao to FJ, a JV will be formed which includes both projects. Palangio will hold an 83% stake and FJ, a 17% stake. The option must be exercised by 15 December 2025.

Alterra Capital Partners has acquired a majority stake in ARP Travel Africa Ltd from the founding Moledina Family. The destination management company, headquartered in the UK, specialises in tailored travel experiences in East Africa. Founded in Tanzania in 1978, the company has established partnerships with travel agents in 50 countries, spanning five continents, catering to international travellers looking to experience the East Africa region. Financial terms were not disclosed.

Fawry, the largest e-payment platform in Egypt, has announced three strategic investments in the Egyptian fintech space. The company has acquired a 51% stake Dirac Systems; a 56.6% stake in Virtual CFO and a 51% stake in Code Zone for a total of US$1,6 million.

The Private Infrastructure Development Group (PIDG) and EDFI Management Company, through the Electrification Financing Initiative (ElectriFI), have invested a total of €4 million in Zambia’s Supamoto. The investment will enable Supamoto to increase pellet production at its facility in the city of Ndola as well as allow the company to expand its logistics and distribution infrastructure to meet growing demand. The transaction will finance 14,800 new fuel-efficient cookstoves which are anticipated to deliver cost and time savings for up to 74,000 people.

Gozem, a super app that operates across Francophone West and Central Africa, has secured US$30 million in Series B funding – $15 million in equity and $15 million in debt — led by SAS Shipping Agencies Services and Al Mada Ventures. The company operates in Togo, Benin, Burkina Faso, Cameroon, Ivory Coast, Gabon, Mali and Senegal.

DealMakers AFRICA is the continent’s quarterly M&A publication
www.dealmakersafrica.com

Artificial intelligence and open-source considerations in M&A

Ridwaan Boda and Alexander Powell
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Artificial intelligence and open-source considerations in M&A

Artificial intelligence (AI) and open-source software (OSS) have become critical components of modern business, making their evaluation a key aspect of merger and acquisition transactions (M&A transactions).

While these technologies drive innovation and reduce costs, they also introduce unique risks, particularly around intellectual property, compliance and integration. Proper due diligence is essential to ensure that these assets add value, rather than liability, in M&A transactions.

A primary consideration is the ownership and licensing of AI technologies. Target companies relying on AI systems should be able to demonstrate clear ownership of their proprietary algorithms and models or, alternatively, that such target company is licenced to use the same. This includes assessing whether the data used to train these models is proprietary, licensed, or sourced from publicly available datasets, as this impacts data privacy and intellectual property considerations.

It is also crucial to understand whether the target company has either developed or procured the AI system. Depending on the scope of deployment of AI systems, these systems may be at different stages of the AI lifecycle. The acquiring company should consider raising some of the following questions with the target company:

  • Where do ownership rights in the AI model, training and testing data, and inputs and outputs reside?
  • Does the target company have mechanisms, such as policies and training, in place to regulate internal usage of the AI systems and to protect the integrity of confidential information, personal information, and sensitive proprietary or corporate information?
  • Have the relevant AI Terms and Conditions been vetted?
  • Has an Ethical Impact Assessment been conducted on the AI system?
  • Has a Privacy Impact Assessment been conducted on the AI system?
  • Generally, does the AI system comply with applicable laws and internationally accepted standards for the ethical and responsible use of AI?
  • Will or has the AI system impacted on any jobs and, if so, have the relevant labour law requirements been complied with?
  • Has the deployment of AI resulted in any tension between job losses and automation and, if so, what reputational impact has this had on the target company?
  • How is AI governance treated by the target company?
  • Does the board of directors of the target company have full line-of-sight as to how AI is being deployed and governed?

Some other important AI considerations include:
(i) whether the target company has implemented processes to monitor and mitigate data and algorithmic bias;
(ii) whether the AI system is actively monitored for cybersecurity risks; and
(iii) whether the AI system has been properly audited and accurate audit logs maintained.

Based on the risks identified in the target company’s use of AI systems, the acquiring company should consider including AI-specific representations, warranties and indemnities to bring the identified risk level within the acquiring company’s risk appetite.

While the risks around AI can be mitigated through representations and warranties insurance, the question for acquiring companies always remains whether the acquirer is in the business of purchasing insurance or whether they seek to purchase a company with a functioning AI system.

Understanding the target company’s use of OSS is equally critical. Open-source components often form the backbone of IT systems, but their use is usually governed by various licensing terms, such as General Public Licence (GPL), Apache, or MIT. These terms commonly address, inter alia, patent use, source disclosure, licence and copyright notice, liability, warranties, and trademark use. Non-compliance with such licence terms can lead to legal claims, including requirements to open-source your proprietary code or to renegotiate licensing agreements. Therefore, it is important to understand whether the target company has utilised any OSS software and, if so, whether it has complied with software security and licensing requirements. Identifying and addressing these issues early in M&A transactions is vital to avoid incurring unanticipated costs, either during or post completion of the transaction.

OSS dependencies also introduce operational risks. Acquiring companies should evaluate whether the target company has a clear process for tracking, updating and managing OSS components, such as whether the target company has implemented and maintained an up-to-date Technology Stack List (also referred to as a Software Bill of Materials), documenting which OSS and other technologies have been used or incorporated into other software or systems, and what the applicable licencing terms are.

From a cybersecurity perspective, use of outdated or unsupported open-source libraries can expose the company to security vulnerabilities, allowing hackers to gain unauthorised access to corporate systems or data. Acquiring companies should consider sunsetting any OSS software which is outdated, or mitigating to newer OSS to avoid the cybersecurity vulnerabilities and risks introduced by outdated or unsupported OSS.

Finally, the integration of AI and OSS into the acquirer’s IT infrastructure poses strategic and technical challenges. Differences between the target company and acquiring company’s technology stacks, licensing models and/or licence compliance practices can complicate post-transaction integration. A clear roadmap for harmonising these systems will realise the acquirer’s strategic vision as envisioned by the M&A transaction. Additionally, acquirers should consider how AI and OSS assets align with their broader business strategy to ensure that they deliver long-term value.

AI and OSS introduce both opportunities and risks to M&A transactions and are key components of any credible IT environment. Conducting a comprehensive due diligence on the ownership, licensing, cybersecurity and operational management of AI and OSS technologies, and the extent of their use within the target company, is critical to mitigating risks and maximising the value that can be harnessed by these technologies post transaction completion.

Ridwaan Boda is an Executive and Head of Department and Alexander Powell a Candidate Legal Practitioner in Technology, Media and Telecommunications | ENS.

This article first appeared in DealMakers, SA’s quarterly M&A publication.

DealMakers is SA’s M&A publication.
www.dealmakerssouthafrica.com

Looking ahead: private equity trends in 2025

Thandiwe Nhlapho
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0
Looking ahead: private equity trends in 2025

As the new year unfolds, the private equity (PE) landscape in South Africa is marked by both opportunities and challenges shaped by economic conditions, geopolitical shifts, regulatory changes and other factors. Despite such complexities, PE, known for its resilience, remains a significant asset class and should continue to attract investment.

According to the 2024 Private Equity Industry Survey conducted by the South African Venture Capital and Private Equity Association (SAVCA), 62% of PE firms expect high deal flow in Southern Africa in 2025.1

Several trends are expected to drive growth and shape South African PE in 2025, with the deal value in the local PE market expected to increase by 6.51% to US$62,12m in 2025.2 This article considers some of the trends which are likely to influence the South African PE market this year.

There is notable optimism among local PE firms compared with their global counterparts in relation to exit activity. The African Venture Capital Association reported that the volume of exits in the first half of 2024 surpassed that of the same period in 2023.3 It appears that this will be a continuing trend in 2025. According to the abovementioned 2024 SAVCA survey, PE firms in Southern Africa are more optimistic about an increase in exit activity than their global peers.

Furthermore, as managers seek new capital sources and investors aim to reduce fees, co-investments are becoming increasingly prevalent. Offering co-investment opportunities to limited partners (LPs) has proven advantageous and is expected to remain a key strategy for improved fundraising, increased deal flow and risk mitigation.

Macroeconomic factors

The macroeconomic environment, including inflation and interest rate trends, will significantly influence PE activity in 2025. Several major economies, most notably the United States, have begun cutting interest rates and several African countries, including South Africa, have followed suit. Lower interest rates can stimulate investment activity by reducing the cost of borrowing, allowing PE firms to finance acquisitions and expand their portfolios.

Additionally, political stability will be crucial for investor confidence and market growth. Following the recent elections in South Africa and the subsequent transition to a Government of National Unity (GNU), there are promising signs of progress in addressing structural obstacles to economic growth. This has prompted both local and international investors to reassess their perspectives on South Africa as an investment destination.

However, much depends on the GNU’s ability to create and foster a more business and investor friendly environment.

LPs will seek managers capable of delivering strong performance at the microeconomic level despite macroeconomic challenges, which is essential for achieving successful exits and delivering distributions.

ESG | Impact investing

There is a growing shift towards sustainable and impact investing driven by increased awareness of environmental, social and governance (ESG) factors. As part of integrated ESG and impact investing, there is also a rise of impact orientated strategies such as gender-lens investing, which entails investing in women-owned or women-led businesses, climate action, and inclusive development. These trends are expected to continue gaining traction as investors increasingly seek to align their financial returns with positive and sustainable outcomes.

In addition, these trends are reshaping the competitive landscape, influencing capital allocation decisions across various sectors and prompting a re-evaluation of traditional investment strategies. As a result, ESG criteria and impact initiatives will be integrated into investment strategies, recognising the potential for long-term value creation.

South Africa’s historical context underscores the critical need for investments that address social disparities, driving PE firms to prioritise businesses that foster job creation and empowerment. This focus aligns with regulatory frameworks such as Broad-Based Black Economic Empowerment.

Sector specific opportunities

Attracting private capital to generalist funds is becoming increasingly challenging, compared to funds with specific strategies that align with the objectives of investors interested in particular sectors. Consequently, targeted investment and specialist funds which focus on specific industries are expected to continue receiving favourable attention.

Technology, Fintech and Innovation
Investment in the technology sector is anticipated to increase, driven by the imperative for digital transformation across various industries. This trend is bolstered by the growing need for internet services, mobile technology, and digital finance solutions, particularly in underserved populations across the country. The fintech sector provides significant opportunities to scale financial inclusion in South Africa.

PE firms are likely to pursue opportunities in innovative, AI and machine learning companies. South Africa’s tech industry is emerging as a significant growth driver, with the country being positioned as a hub for innovation and digital transformation on the African continent. The government has also expressed a commitment to foster a business environment that encourages entrepreneurship and innovation.

Infrastructure Development and Renewable Energy
South Africa’s logistics and industrial real estate sectors are notably robust, driven by increasing demand for warehousing and distribution centres to support e-commerce growth and telecommunication infrastructure development.

There is a growing demand for economic and social infrastructure projects in South Africa. The government has plans to improve its infrastructure, particularly in energy, healthcare, transportation, and water management. Furthermore, the government has opened up power generation to independent power producers, which have become key players in developing renewable energy projects. This presents collaboration opportunities through public-private partnerships and PE involvement in such projects.

The renewable energy sector in South Africa, particularly solar, wind and nuclear energy, presents one of the most promising investment opportunities. The country’s integration of renewable energy sources is not only a strategic response to climate change, but also a critical necessity due to the country’s ongoing energy crises, specifically in electricity generation.

According to the South African Institute of International Affairs, South Africa is one of the African countries with the highest share of renewables on the continent.4 This positions the nation as a key player in the continent’s transition to sustainable energy solutions, offering significant potential for PE investments.

Conclusion

The South African PE market in 2025 stands at a pivotal juncture, offering exciting opportunities despite the challenges. As one of Africa’s most developed economies, South Africa presents a diverse array of investment prospects across various sectors. By adeptly navigating the key trends within the PE market, investors can identify where growth opportunities lie and strategically position themselves to capitalise on such opportunities.

1 https://savca.co.za/wp-content/uploads/2024/08/SAVCA-PE-Survey-2024-Digital.pdf
2 https://www.statista.com/outlook/fmo/private-equity/south-africa
3 https://www.avca.africa/media/i1cjek11/avca24-06-apca-q2_5-new.pdf
4 https://saiia.org.za/research/renewable-energy-technologies-in-the-global-south-insights-from-africa/.

Thandiwe Nhlapho is a Corporate Financier | PSG Capital.

This article first appeared in Catalyst, DealMakers’ quarterly private equity publication.

DealMakers is SA’s M&A publication.
www.dealmakerssouthafrica.com

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