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In this episode of Ghost Wrap, I covered these important stories on the local market:
Sasol has seen its share price halve over the past year, with the wonderful opportunity for investors in 2020 becoming a very distant memory as infrastructure and other issues take their toll.
ArcelorMittal is perhaps the most severe rollercoaster ride of them all on the JSE, with the steel industry only for those with an exceptionally strong stomach.
Sappi demonstrates that the paper industry is also a tough place to play, with swing traders doing better than long-term holders of this stock.
Curro may be growing its earnings at a solid rate, but the company is still coming to terms with growth that is well below original expectations.
British American Tobacco is now profitable in the non-combustibles business and is still doing what it does best in the traditional smoking business: putting through pricing increases that fund dividends.
Get the latest recap of JSE news in the Ghost Wrap podcast, brought to you by Mazars:
Anglo American looks to Finland for more opportunities (JSE: AGL)
If this sounds familiar, it’s because Sibanye-Stillwater has been doing the same thing
Anglo American and Finnish Minerals Group have signed a memorandum of understanding to explore opportunities around Finland’s battery metals strategy. This reminds me of when the local property funds all ran off to Eastern Europe in search of deals. Our mining houses seem to be taking a similar route in Finland!
To be fair, Anglo American already has an investment in Finland in the form of the Sakatti project, so it becomes an interesting debate around who has been copying whose homework around here.
There are various metals that form part of the “green metals” or “transition metals” groupings that are frequently written about. These metals are just as exposed to cycles as other commodities, evidenced by the Glencore news further down in Ghost Bites.
At this stage, Anglo American hasn’t released any concrete details around this memorandum of understanding.
Calgro M3 released an encouraging trading statement (JSE: CGR)
Share buybacks do wonders for earnings growth
Calgro M3 has been a comeback kid of note on the local market, with a focused strategy and capital allocation discipline that is working out very nicely. The latest trading statement is further evidence of this, with the company expecting HEPS for the year ended 29 February 2024 to be at least 20% higher.
If you’re familiar with trading statements, you’ll know that this is the minimum required disclosure under JSE rules. In other words, the increase could be significantly higher. When you consider that the number of shares in issue has decreased by 21% over the past year, even a sideways move in headline earnings would look strong at HEPS level.
Given the recent positive trajectory in operating performance, it seems fairly likely that the earnings improvement is significantly more than 20%. We will know for sure as we move closer to results being released in early May, with an updated trading statement likely to be released between now and then.
The nickel market has claimed another scalp (JSE: GLN)
Glencore isn’t prepared to carry any further losses at Koniambo Nickel
The Koniambo Nickel joint venture between Société Minière du Sud Pacifique SA and Glencore can be found in New Caledonia, a French territory in the South Pacific. Glencore has been involved since the Xstrata transaction back in 2013 and has funded more than $4 billion over the past decade without realising a profit at any stage.
This is obviously a terrible outcome for shareholders and enough is enough at some point. The mine is very important to the local economy but is simply untenable in the current market conditions for nickel. This is despite the best efforts of the French government to try and support the ongoing operation of the mine.
The operation will be moved into a state of care and maintenance, with the furnaces to remain hot for six months. All local employees will be retained for that period. Glencore will try to find a new industrial partner for the mine in an effort to avoid the economic fallout for the region.
Sirius buys two business parks in Germany (JSE: SRE)
The acquisitions have been funded from the November capital raise
Sirius Real Estate is listed on the JSE, but you won’t find any of the fund’s money flowing into local opportunities. This is a perfect example of how you can invest on the JSE and give your money a passport in the process. The fund is focused firmly on business and industrial parks in Germany and the UK.
The latest deal is to acquire two business parks in Germany for €40 million. The deals have been funded by the proceeds of the €147 million capital raise that was concluded back in November. It’s been a busy time for Sirius, as the fund acquired three UK properties in North London for €33.5 million towards the end of 2023.
The two German properties are of very similar values. The first is in Köln and was acquired for €20.0 million, with an EPRA net initial yield of 7.3%. The occupancy rate is just over 89% and the weighted average lease expiry is 2.4 years. The second property is in Göppingen and was acquired for €19.8 million. It has been acquired on an EPRA net initial yield of 6.9%. Occupancy is at 86% and the weighted average lease expiry is 2.8 years.
In both cases, Sirius will look for value-add opportunities to improve the economics of the properties. Sirius already owns other properties in the areas and so there is familiarity with both regions.
From the capital raised in November, €78 million has been committed to legally binding acquisitions and Sirius is in discussions for opportunities related to the remaining €70 million or so.
Little Bites:
Director dealings:
The CEO of Invicta (JSE: IVT), Steven Joffe, as well as Dr. Christo Wiese have been at it again with buying up shares in the company. The latest purchase is to the value of R985k for each of them.
The CEO of RH Bophelo (JSE: RHB) has bought shares in the company worth R401k.
Associates of directors of Nictus (JSE: NCS) have bought shares worth just under R24k.
This isn’t a director dealing in the usual sense as it relates to share options rather than an outright sale or purchase, but I simply had to mention a director of Naspers (JSE: NPN) selling shares worth a spectacular R79.8 million. Best of all, this only represents around 58% of the shares received under the share options that were exercised. It’s tough at the top, hey.
Cognition Holdings (JSE: CGN) released a rather amusing trading statement, noting that HEPS for the six months to December 2023 will be up by between 260% and 280%. This is thanks to returns on cash balances held over the period after the disposal of the Private Property platform. The company also renewed the cautionary announcement related to ongoing discussions with Caxton and CTP Publishers and Printers (JSE: CAT), Cognition’s holding company.
The chair of Sasfin (JSE: SFN), Deon de Kock, has unfortunately had to step down for medical reasons. Current lead independent director Richard Buchholz has been nominated as his replacement, subject to approval by the Prudential Authority.
Southern Palladium (JSE: SDL) released an addendum to the Bengwenyama project study. Perhaps I’m misreading it (and very happy to be corrected), but it suggests a project IRR of roughly 20% (see table below). That doesn’t sound like anywhere near enough to make junior mining appealing, especially in PGMs!
Get the latest recap of JSE news in the Ghost Wrap podcast, brought to you by Mazars:
Brimstone reduced its stake in Equites (JSE: BRT)
The recent recovery in the Equites share price perhaps prompted this move
The Brimstone story hasn’t been very exciting, sadly. The share price has halved in value over 5 years and is down over 22% in the past year. The first problem is that the market puts a substantial discount on the intrinsic NAV. The second problem is that the intrinsic NAV hasn’t shown appealing growth. The combination means a disappointing share price performance and a market cap of just R200 million.
When trading at such a discount to NAV, turning some of the assets into cash isn’t a bad strategy (depending on what happens to the cash thereafter). Brimstone has used the recent improvement in the Equites share price to sell R123.9 million worth of shares, cutting its stake to just over a third of what it used to be.
The disposals were achieved at an average price of R13.02 per share. Hindsight is perfect obviously, but the Equites share price was trading at double this level in 2021. They must be kicking themselves about not selling sooner.
The proceeds will be used to meet funding obligations in the near to medium term. In a perfect world of course, the company would be able to use the proceeds for share buybacks, thereby helping to close the discount to intrinsic NAV.
enX has distributed the Eqstra disposal circular (JSE: ENX)
Shareholders can get all the information they want on the proposal deal with Nedbank
A couple of months ago, enX announced a firm intention to dispose of Eqstra Investment Holdings to Nedbank. It’s a clever deal in my view, as the leasing and fleet management business will benefit greatly from a cheaper source of funding (and nothing is cheaper than being owned by a bank). It also gives Nedbank more scale in its fleet management business and a strong route to market. For enX, it gets a capital hungry business off the balance sheet.
Acting as independent expert, Valeo Capital has opined that the transaction is fair and reasonable to shareholders. The independent board of enX has recommended that shareholders vote in favour of the deal. You can find the full circular here.
I just hope that more attention to detail was paid to the deal than the expenses table (something I always look at). It’s not every day you’ll see a typo in the description AND the footnote:
There’s great news at Kore Potash (JSE: KP2)
Finally, there’s a meaningful step forward on the project
Kore Potash shareholders (and everyone else involved) have had to be patient on this one. For months now, we’ve been reading about PowerChina (the owner of SEPCO) and all the work that the company is doing on site to put together an Engineering, Procurement and Construction (EPC) proposal. Construction projects of this scale can easily sink construction groups if they go wrong, so immense effort is put into the contract itself. The risks are even higher when the build is in a difficult jurisdiction, like the Republic of Congo.
The excellent news is that PowerChina has finally delivered an EPC proposal and draft contract offer. Best of all, the pricing aligns with expectations and confirms the capital cost that was detailed in the original study. Full commercial terms now need to be negotiated, with a targeted signing date of April 2024. Thereafter, the Summit Consortium will need to put in a funding proposal within six weeks of the EPC documentation being signed.
The share price jumped 23% on the news. You can be sure that whether things go well or extremely badly in the next few months, each major update will drive a significant move in the share price, either up or down.
Sasol shareholders continue to take a beating (JSE: SOL)
The latest trading update isn’t helping
Sasol’s share price has halved in the past year, having decoupled considerably from the oil price in recent times. The chemicals side of the business has a substantial bearing on the share price performance, as do the operational realities in the energy business in South Africa.
Battered shareholders don’t seem to be getting any relief, with another 3.9% drop on Friday after the company released a trading statement. Results for the six months to December were hit by a bunch of issues, ranging from commodity prices through to infrastructure problems in South Africa and the weaker global growth outlook.
Adjusted EBITDA for the period will be between 8% and 18% lower. By the time you reach core HEPS level, the decrease is 19% and 33%.
Although I tend to focus on HEPS rather than EPS which is impacted by impairments (non-cash write-downs of assets), I must note that the Secunda liquid fuels refinery was written down to zero as at June 2023 and all the capital expenditure on the project in the six months to December 2023 was also fully impaired due to ongoing issues.
I would therefore argue that EPS is worth considering at the moment. That metric is down by between 29% and 43%.
Whichever way you cut it, things are not looking healthy at Sasol.
Little Bites:
Director dealings:
An associate of a director of Clicks (JSE: CLS) sold shares worth R2.7 million.
The CEO of Invicta (JSE: IVT) and Dr. Christo Wiese are both still buying up shares in the company. The latest tranche saw CEO Steven Joffe pick up R720k worth of shares and Wiese took R1.05 million.
A director of a major subsidiary of Santova (JSE: SNV) sold shares worth R1.2 million.
After buying another R820k worth of shares, Protea Asset Management (related to Sean Riskowitz) now owns just over 20% of Finbond (JSE: FGL).
An associate of a director of Afrimat (JSE: AFT) has bought shares worth R122k.
Sirius Real Estate (JSE: SRE) only achieved a modest take-up of the dividend reinvestment plan, which suggests that shareholders aren’t seeing great value in the shares at these levels. Only holders of 0.46% of shares on the UK register and 7.24% of shares on the SA register elected to receive shares instead of a cash dividend.
Having already given us significant insight into earnings earlier this month, MiX Telematics (JSE: MIX) has now released its detailed 10-Q (quarterly report under US rules) with the SEC. If you want to check out the company in detail, you’ll find it on the website.
Insimbi Industrial Holdings (JSE: ISB) released a trading statement noting that HEPS will be at least 20% lower for the year ending 29 February 2024. This is the bare minimum disclosure required by the JSE, so it’s quite possible that the actual decrease will be significantly worse. No further details have been given.
Get the latest recap of JSE news in the Ghost Wrap podcast, brought to you by Mazars:
Anglo American’s Q4 production met expectations (JSE: AGL)
Thank goodness for Quellaveco and Minas-Rio
At mothership Anglo American, there are loads of moving parts that come together to deliver a group result. These range from how listed subsidiaries like Amplats and Kumba Iron Ore are performing (see both further down) through to how the South American mines are doing. Of course, De Beers is also a factor here.
It’s not hard to see why capital allocators are ignoring South Africa. Kumba had to slow down production because Transnet is so useless, whereas the Minas-Rio mine delivered its highest quarterly volume of premium high grade iron ore.
Notably, diamond production fell by 3%, but this was due to Venetia (in South Africa) transitioning to underground operations. Production from Botswana picked up as diamond prices started to improve, but rough diamond sales volumes in the quarter were still way down year-on-year.
On the copper side, production was down 6% due to lower grades and harder ore at Los Bronces in Chile, partially offset by higher production at Quellaveco in Peru.
On a full-year basis, production volumes were up 2% across all commodities. That’s not the most useful statistic though, as there are so many underlying commodities that have vastly different values.
HEPS plummeted at Anglo American Platinum (JSE: AMS)
PGMs have been having a torrid time
Anglo American Platinum released a trading statement for the year ended December 2023. HEPS will decrease by between 67% and 77%, so that’s a rather revolting year.
There’s not much that the company can do when the US$ PGM basket price fell 35%. Although the average rand/dollar exchange rate weakened by 13% and gave a small amount of relief here, it was nowhere near enough. A 2% increase in sales volumes was also woefully inadequate in saving the situation.
On top of all of this, the company has had to contend with inflationary pressures on costs.
The share price has lost 42% of its value in the past 12 months.
In a separate announcement dealing with the fourth quarter production results, guidance for 2024 was given for production (3.3 – 3.7 million ounces) and cash operating unit costs of R16,500 – R17,500 per PGM ounce. For reference, the basket price per PGM ounce was R26,111 this quarter.
ArcelorMittal signs off on an ugly financial year (JSE: ACL)
The wind down of the Longs steel product operations has been deferred
The year ended December 2023 is one that ArcelorMittal will want to forget. Although revenue increased by 2.1%, EBITDA absolutely collapsed – down 98.7%. There’s debt on the balance sheet as well, so the losses by the bottom of the income statement are eye-watering. After making headline earnings of R2.6 billion in 2022, the company swung into a headline loss of R1.89 billion in 2023.
Net borrowings increased by 14.5% to R3.2 billion and the net asset value was slashed by 33% to R7.8 billion. It’s just hideous wherever you look.
Between poor local and Chinese demand for steel and higher energy costs, things were always going to be tough. Add in the local logistics failures and a ban on scrap steel exports (thereby increasing competition with steel manufacturers using scrap rather than iron ore as inputs) and you had a recipe for disaster.
After much consultation with government, ArcelorMittal has deferred the wind down of the Longs steel business for up to six months. A clear warning shot has been fired by the company, with substantial negative impact if the wind down goes ahead. Much depends on improvements at Transnet, so I wouldn’t hold my breath.
In the outlook sector, the company notes that the current low steel prices are unlikely to remain the case going forward as global manufacturers are under pressure. Ultimately, demand in China will also play a huge role in how the market performs in 2024.
Here’s another chart for the mountain biking enthusiasts among you:
British American Tobacco achieved profitability in New Categories (JSE: BTI)
The market seemed to like these numbers
For the year ended December 2023, British American Tobacco grew revenue by 3.1% on a constant currency basis. The reported number was down 1.3% though. The big story was in New Categories, which grew revenue by 21% and finally achieved profitability – two years ahead of schedule! Revenue from non-combustibles is now 16.5% of group revenue.
The company is aiming for the non-combustibles business to be over 50% of revenue by 2035.
On the combustibles side, revenue was up just 0.6% in constant currency. Price and mix benefits were 6.1%, so that tells you how volumes dropped off. British American Tobacco literally relies on being able to put price increases through on an ever-shrinking base of smokers, all while achieving great ESG scores. In fact, the company is proud to announce that the 2023 MSCI ESG rating was upgraded from BBB to A, achieving targets for water and waste. You can tell how much faith I have in the ESG industry.
The company recognised a gigantic impairment in its US business (£27.3 billion – and take careful note of the currency there). Without that, adjusted profit from operations was up 3.9% in constant currency and margin expanded 40 basis points to 45.6%.
As is the British American Tobacco brand promise to investors, operating cash flow conversion was 100%. This helped bring net debt to adjusted EBITDA down to 2.6x and drove a 2.0% increase in the dividend.
In terms of outlook, pressures in the US (for various reasons) will impact 2024. with global tobacco industry volume expected to be down 3%. Thereafter, revenue should grow at 3% to 5%, which is all that South African investors want to see here. The only reason to buy British American Tobacco is to get a modestly growing hard currency dividend.
Oh, and to meet ESG investment requirements. I forgot.
15% of Curro’s schools are performing below expectations (JSE: COH)
This isn’t the report card that investors want to see
Curro is one of the best examples around of the exuberance on the JSE in the 2015 – 2017 period. Property companies were booming at around the same time, with Curro offering a hybrid of a real estate portfolio and the dream of filling those schools with a rising middle class over time.
Here’s how that chart panned out:
High growth expectations are dangerous in any company. As you can see, Curro shareholders were brought sharply down to earth by the realities of South Africa. Those realities are still kicking in, with the year ended December 2023 revealing that 28 of the 182 schools achieved lower than expected growth over the past two years, leading to impairments.
Impairments are non-cash charges that are excluded from HEPS but included in EPS. They are calculated with reference to the return on capital that the schools should be providing. Although it doesn’t help that Curro’s weighted average cost of capital moved from 14.5% in 2022 to 15.6% in 2023, the bigger issue is growth in the middle class in South Africa and Curro’s appeal to the people who have stayed behind in this country. The impairment for the year is between R340 million and R380 million.
The good news is that recurring HEPS moved firmly in the right direction, up between 26.3% and 37.2%. Dividends are considered based on recurring HEPS, so that’s the number to really focus on.
As a reminder of how important timing is when it comes to single stock exposure, look how different the 12-month chart looks to the longer term picture:
Impala Platinum lays bare the damage to HEPS (JSE: IMP)
The PGM sector is where dreams went to die in the past year
Impala Platinum has issued a further trading statement for the six months ended December. Nobody took the first one seriously anyway, which had the minimum required disclosure of HEPS differing by at least 20% to the prior period. Even a very quick calculation revealed a far worse scenario.
Sure enough, the company has issued a further trading statement that reflects HEPS down by between 76% and 82%. Although sales volumes were 12% higher from the interim consolidation of Impala Bafokeng and better operational performance, dollar revenue per 6E ounce sold fell by 37%.
A Q1 update at the KAL Group AGM (JSE: KAL)
Fun fact: the group sold 2.4 million litres of energy drinks in 2023 – and 5.4 million pies!
In an incredibly fun presentation, KAL Group included slides like this absolute winner about forecourts business The Fuel Company:
These statistics don’t really mean anything to investors of course, but they make for interesting reading. I also found it quite fun to note that the retail outlets sold 6,400 tonnes of dog food and only 309 tonnes of cat food. Y’all need more cats out in the platteland!
The AGM deals with the full year 2023 numbers which were already known to the market. Recurring HEPS had increased 7.2% for the year and the dividend per share was 7.1% higher, so it was a solid performance.
The company used the AGM to give an update on the first quarter of the 2024 financial year, reflecting revenue growth of just 3.4% and deflation of 1.0%. You won’t see that every day! Recurring headline earnings per share is only up 5.7% for the quarter, which is a good reminder that retailers actually quite like a bit of inflation. It’s also worth highlighting that group fuel sales are down 0.8%, perhaps speaking to overall economic activity and consumers cutting back in general.
At Kumba, the Transnet issue is just getting worse (JSE: KIO)
This is the real State of the Nation– and there are no jets to make us feel better
Kumba Iron Ore has announced its production and sales report for the fourth quarter, as well as a trading statement for the year ended December 2023. Thanks to higher iron ore export prices and a weaker range, HEPS will be between 18% and 31% higher for the year. This is a lucky escape when you read about the underlying logistical challenges. We can only dream about what might have been for the company if the infrastructure was working.
Although there was a maintenance shutdown in October that obviously impacts this statistic, the decrease in ore railed to Saldanha Bay Port of 19% in Q4 2023 vs. Q3 2023 is just another example of the far bigger problems around our rail infrastructure. For the full year, ore railed improved by just 1.6% even though the base period included industrial action at Transnet.
In response to on-mine stockpiles that were far too high, production in Q4 2023 was 26% lower than in Q3 2023. Despite a 5% drop in full year production, full year unit costs actually improved to $41 per tonne, below revised guidance of $42 per tonne thanks to rand currency weakness and cost savings. They pulled off a proper performance here despite infrastructure letting them down.
Due to the extensive stockpiles, sales increased by 5% vs. Q3. Iron ore prices were higher in the fourth quarter, so this was a good time for sales to pick up. The problem is that the stockpiles are mainly at the mines rather than the Saldanha Bay Port, so there’s not much of a buffer to keep sales ticking over even when production dips.
Guidance for 2024 to 2026 has been revised to 35 – 37 Mtpa, with expected unit costs of $38 – $40 per tonne. This is the best that the company believes it can do in the context of the current Transnet rail issues, which aren’t expected to be resolved over the medium term.
Mondi has confirmed that it is sniffing around DS Smith (JSE: MNP)
Consolidation is a feature of tough industries
Mondi has announced that it is in the “early stages” of considering a merger with DS Smith, which would take the form of a share-for-share deal. The thesis here is that this would create an industry leader in European paper-based sustainable packaging solutions.
You only needed to read the Sappi results earlier this week to see how tough the paper and packaging sector can be. Consolidation makes sense in difficult industries.
If this deal were to go ahead, it would have benefits like vertical integration, enhanced security of paper supply, economies of scale (bigger businesses can sometimes be more profitable in terms of ratios) and complementary positions in products in the market.
At this point there is no guarantee that Mondi will make an offer. The company has until 5pm on 7 March 2024 to either announce a firm intention to make an offer or to confirm that it will not make an offer. This is how the UK takeover laws work.
MultiChoice settles with the Nigerian tax authorities (JSE: MCG)
South Africa vs. Nigeria is a common theme this week
Much like Bafana Bafana, a few local corporates haven’t had a happy time at the hands of Nigerians. One such example is MultiChoice, which has agreed to pay the Nigerian tax authorities a substantial $37.3 million in full and final settlement of all matters in dispute.
Interestingly, the announcement notes that this payment is offset against security deposits and “good faith payments” made to date.
Little Bites:
Director dealings:
The CEO of Invicta (JSE: IVT) bought shares worth R335k.
A non-executive director of Collins Property Group (JSE: CPP) bought shares worth R138k.
Jubilee Metals (JSE: JBL) updated the market on the progress made in the copper metals portfolio in Zambia. The goal is to reach 25,000 tonnes of copper per annum and they have a few projects underway. Aside from an unavoidable delay or two, the underlying narrative is positive.
ISA Holdings (JSE: ISA) released a trading statement noting that HEPS is expected to increase by at least 20% for the year ending February 2024. This is the minimum level of disclosure permitted by the JSE, so the difference could technically be a lot more. We won’t know until results come out.
The winners of the DealMakers subjective awards will be unveiled at the ANSARADA DealMakers Annual Awards on the 13 February 2024. The shortlisted nominees, as judged by the Independent Panel are:
Petronas’ sale of its Engen stake to Vivo Energy
Following a competitive process by Petronas to find a suitable buyer for its 74% shareholding in African-based energy group Engen, Vivo Energy emerged as the successful bidder. The transaction, the value of which is not in the public domain, is one of the largest downstream investments in Africa, and following the deal, will result in the group having more than 3,900 service stations in 27 African countries.
Local Advisers: Rothschild & Co, Standard Bank, Citigroup Global Markets, Morgan Stanley, Rand Merchant Bank, ENS, Werksmans, Webber Wentzel and EY.
Liberty Two Degrees buyout by Liberty
The buyout of minorities brought Liberty Two Degrees (L2D) fully back into the group after seven years of a separate listing on the JSE. As its major shareholder with an c.61% stake, L2D was one of the less liquid listed property stocks. The offer of R5.55 a share represented a premium of 46.4% to the 30-day volume-weighted average price at the time of announcement giving investors a favourable exit. The property REIT owns around 25% of a portfolio of landmark retail and hospitality assets in SA.
Local Advisers: Rand Merchant Bank, Java Capital, Standard Bank, Werksmans, Webber Wentzel and Mazars.
Disposal by Life Healthcare of Alliance Medical Group to iCON Infrastructure
After receiving several unsolicited proposals from third parties to acquire its European diagnostic and molecular imaging business, Life Healthcare announced its disposal of AMG just seven years after its acquisition from funds managed by M&G Investments and Talbot Hughes McKillop. The deal, valued at c.R21bn (including debt) will unlock significant value for shareholders with the company set to return c.R8,4bn to shareholders by way of a special dividend.
Local Advisers: Goldman Sachs, Barclays Bank, Rand Merchant Bank, Standard Bank, Webber Wentzel, Werksmans, Deloitte and BDO.
Sun International’s acquisition of Peermont
Announced in December the Peermont transaction, to be funded entirely by debt, provides Sun International with an opportunity to build scale and acquire a world-class and highly cash generative business. The R3,2bn equity deal brings 11 properties, located across South Africa and Botswana, including flagship Emperors Palace, and online betting platform PalaceBet. For Peermont shareholders, the deal provides an opportunity to achieve meaningful liquidity and for the combination with a respected and successful listed entity.
Local Advisers: Nedbank CIB, Rand Merchant Bank, Cliffe Dekker Hofmeyr, Bowmans, Webber Wentzel, Herbert Smith Freehills South Africa, PwC and Deloitte.
RCL Foods’ disposal of Vector Logistics to AP Møller
Remgro-owned RCL Foods sold its frozen logistics business, Vector Logistics, to a South African subsidiary of A.P. Møller Capital, a Danish fund manager and part of global shipping and logistics group A.P. Møller-Maersk. The R1,25bn deal was two years in the making following a competitive disposal process to seek a strategic partner. The deal will enable Vector Logistics to expand its supply chain expertise and logistics services to meet growing demand in Africa.
Local Advisers: Rand Merchant Bank, Baker McKenzie, White & Case (SA), Webber Wentzel and EY.
Exit by Carlyle Group of Tessara to AgroFresh
In 2018, Carlyle’s sub-Saharan Africa Fund acquired a majority stake in Cape-based Tessara. In 2023 the private equity firm exited its investment through a competitive auction process. AgroFresh is an AgTech innovator and global leader in post-harvest produce freshness and packaging solutions; Tessara specialises in SO2 generating sheets to prevent fungal decay and are sold in over 22 countries on five continents. During its tenure, Carlyle focused on strengthening Tessara’s R&D, new product innovation and on expanding the capacity of its manufacturing facilities.
Local Advisers: Bowmans, White & Case (SA), ENS, Webber Wentzel and EY.
Capitalworks’ exit of Robertson and Caine to Vox Ventures
Capitalworks, an alternative asset management firm, has exited its 2015 investment in South Africa’s largest boat builder, Robertson and Caine, to international investment company Vox Ventures, a wholly owned subsidiary of PPF, a European investment firm. The deal represents one of the most significant foreign direct investments in the marine industry in South Africa. The business has been positioned to benefit from the next phase of growth offered by a strategic investor.
Local Advisers: CMS, Werksmans, Webber Wentzel and PwC.
Absa’s eKhaya B-BBEE transaction
In March 2023, Absa announced the implementation of an R11,2bn Broad-Based Black Economic Empowerment deal allocating a 7% shareholding to staff and community beneficiaries. The deal is structured with a 4% evergreen Corporate Social Investment component (CSI Trust) and a 3% vesting staff element (ESOP). Staff employed by Absa’s subsidiaries outside of South Africa will participate equally in a cash-equivalent staff scheme, equivalent to about 1% of the Absa Group’s market capitalisation. The transaction will directly impact c.35,000 people employed by Absa and benefit a broader constituency across South Africa through the CSI Trust.
Local Advisers: Absa CIB, Oxford Partners, J.P. Morgan, ENS, PwC and KPMG.
Heineken Beverages’ Bokamoso transaction
Announced in July, almost 5,000 employees will jointly own a 6% stake in the company through an employee share ownership plan (ESOP) called the Bokamoso Workers Trust. The scheme is one of the conditions of ownership imposed by South Africa’s competition authorities in 2021, when Heineken International acquired Distell from minority shareholders. Distell’s previous empowerment deal saw the Distell Development Trust hold a 15% interest in the group’s local operations. This stake was rolled into the larger Heineken Beverages SA that was created through the merger, diluting the stake to an overall interest of 9%.
Local Advisers: Rand Merchant Bank and Webber Wentzel.
DewCrisp Western Cape
With 700 employees, the company applied to enter business rescue in July 2023. At the time, DewCrisp was facing three liquidation applications and it was in a state of severe financial distress, with virtually no working capital available. The company’s financial position was adversely affected by the COVID-19 pandemic and the lockdown measures put in place. Not only was retail income affected by the status quo, but so too were the crops which could not be harvested nor sold. The BRPs and the rescue team, assisted by management, worked on improving the profitability and sustainability of the company by undertaking an extensive operational restructuring. The business rescue process was successful in preventing the liquidation of the company, with 99% of creditors voting to adopt the business rescue plan. Additionally, the current shareholding remains intact.
Local Advisers: Engaged Business Turnaround and Werksmans.
Cast Products South Africa
Cast Products South Africa (CPSA), the largest foundry group in South Africa and 85% owned by the Industrial Development Corporation of South Africa (IDC), was placed in voluntary business rescue by its board in December 2021. In the four years until it was placed in business rescue, the company lost c.R1,7m, excluding the losses that accumulated after the IDC acquired Scaw Metals from Anglo American in 2010 as a result of pressure from escalating input costs, particularly electricity and scrap metal. The restructuring and restoration of solvency has been finalised, and the BRP’s are presently in the process of restructuring the Board and appointing a strategic management team to take the business forward. R1bn of liability has been restructured, the manufacturing capacity for South Africa has been retained, and corresponding jobs preserved under circumstances where the manufacturing industry is facing challenging economic times.
Local Advisers: Engaged Business Turnaround, Chrisyd Advisory Services and ENS.
Colin du Toit (Webber Wentzel)
Colin, a Partner at Webber Wentzel, has led on a number of high-profile deals, including MTN SA’s sale and leaseback of its SA towers portfolio. He advised Thungela Resources on its acquisition of a controlling stake in the Ensham Coal Mine and advised Safari Investments in respect of the public offer by Heriot REIT to acquire all the issued shares in Safari not already held. Colin was also a core part of the team that worked on the acquisition by Northam of an anchor stake of 34.5% of Royal Bafokeng Platinum and subsequent contested general offer for its control.
Ferdi Vorster (Rand Merchant Bank)
A member of the Rand Merchant Bank team, Ferdi advised Vivo Energy and Vitol on the acquisition of Engen from Petronas. He led the acquisition by Pick n Pay of Tomis and was involved as part of the RMB deal team that advised Life Healthcare on the sale of Alliance Medical, the buyout and delisting of Liberty Two Degrees, and RCL Foods’ sale of Vector Logistics to A.P. Møller Capital. Ferdi also worked on the sale of a 68.3% stake in Tanzanian-listed Tanga Cement by AfriSam to German multinational, Heidelberg Cement, first announced in 2021 – a deal that has taken numerous twists and turns over a few years, in terms of regulatory approvals.
Gareth Armstrong (Rand Merchant Bank)
Gareth is a Corporate Finance Executive at RMB and heads up the Consumer & Healthcare advisory business. In 2023, he helmed several market-leading including Life Healthcare’s sale of Alliance Medical Group to entities advised by iCON Infrastructure and led the RMB team that advised RCL Foods’ sale of Vector Logistics to A.P. Møller Capital. He also advised Richemont on the cancellation and replacement of its Depositary Receipts and A Warrant Receipt programmes and previously co-advised CIVH on its significant investment in Vodacom and CIVH on the acquisition of Herotel in a transformational deal for the TMT infrastructure sector.
Giles Douglas (Rothschild & Co)
Co-head of Rothschild & Co, Giles advised Petronas on its disposal of its 74% interest in Engen to Vivo Energy. He also advised ZCCM Investment Holdings and the Government of the Republic of Zambia on the restructuring and sale of a majority interest in the Mopani Copper Mine, providing various strategic initiatives in relation to the mine, and to the introduction of a strategic partner into the asset. Among other deals over the past few years, Giles has advised Ascendis Healthcare on its restructuring and debt for assets swap, and the sale of Respiratory Care Africa to ATA Capital.
Ryan Wessels (Bowmans)
Ryan is a Partner in the Bowmans M&A practice, which he joined in 2005. During the year he advised US-based AgroFresh on its entry into the South African market through the acquisition of local Tessara from The Carlyle Group. He also worked on the unbundling by Barloworld of the Zeda Group, and TotalEnergies’ divestment of its joint venture equity stake in the South African Natref refinery business to Prax Group. He advised MTN on its initial public offering of 20% of its shares in MTN Uganda and a listing of MTN on the Uganda Security Exchange.
Last week was all about a possible takeover by Canal+ SA of MultiChoice, this week the buzz is about Mondi’s interest in smaller peer DS Smith. Mondi has confirmed that it is in the early stages of considering a possible all share combination with DS Smith which it notes “represents an exciting opportunity to create an industry leader in European paper-based sustainable packaging solutions”. This is not the first time Mondi has shown interest in the LSE-listed UK multinational packaging business, it did so previously in 2021. While no firm takeover proposal has been made, under UK takeover rules Mondi has until 7 March to make a firm offer or walk away.
Interestingly the Takeover Regulation Panel has released a statement on SENS concerning the offer to MultiChoice minorities by Groupe Canal+ SA. Although the MultiChoice Board has rejected the offer and withdrawn its cautionary announcement, the Panel has advised shareholders to continue to exercise caution it is still engaging with the two parties.
Lesaka Technologies (previously Net 1 UEPS Technologies) is to acquire Touchsides, a data analytics and insights and merchant services company, from Heineken International. The acquisition aligns with Lesaka’s strategy of adding scale and broadening its service offering in the Merchant division. As part of the deal, Heineken’s operating business in SA has agreed to a long-term contract with Touchsides for access to its tavern data and services.
Sanlam’s offer to buyout minorities of CTSE-listed Assupol represents an offer price premium of 32%, at R15,23 per share, valuing the company at R6,5 billion. Assupol’s embedded value is R7,07 billion. Assupol’s major shareholders, Budvest (46.11%) and the International Finance Corporation, (19.36%) expressed and interest to exit the investment in early 2023. For Sanlam, Assupol represents a strong strategic fit and will enhance its position in the Retail Mass segment. Sanlam also announced that Sanlam Allianz Africa, its 60:40 joint venture with Allianz had completed a mandatory offer for Sanlam Maroc shares increasing its shareholding from 61.73% to 85.59% for a total consideration of R2,43bn.
Old Mutual Alternative Investments, through its Hybrid Equity capability, has announced a R125 million preference share facility to Afropulse Group, a black women-owned investment holding company. The facility will facilitate a restructure of its funding which is supported by a 6.56% equity shareholding in Imperial Logistics.
Announced in August 2023, the value of the investment by Mastercard into MTN Group Fintech has now been disclosed. Mastercard will invest up to US$200 million (c.R3,7billion) for a minority stake in the business at a valuation of $5,2 billion on a cash and debt-free basis.
Sable Platinum Holdings (SPH), a subsidiary of Sable Exploration and Mining, has taken a 2.5% stake in the unincorporated joint venture (Dense Medium Separation beneficiation plant) from IPace, in exchange for additional funding of R1 million required in the plant. SPH has granted IPace an option to buy back the stake at R1,3 million which expires on 31 October 2024.
In a successful private placement, Spear REIT has placed a total of 37,553,852 new shares at an issue price of R8.35 per share. The proceeds of the private placement will be utilised to settle certain debt obligations.
Zeder Investments has declared a special cash dividend of 20 cents per ordinary share, payable from income reserves. The company has 1,540,160,354 ordinary shares in issue.
Following the launch of the share buy-back programme announced in October 2023, AB InBev has repurchased a further 829,124 shares at an average price of €57.44 per share for an aggregate €47,62 million. The shares were repurchased over the period 29 January to 2 February 2023.
In terms of its authority to repurchase ordinary shares in the company, Argent Industrial has repurchased 989,360 shares for an aggregate R15,1 million. Argent is entitled to repurchase a further 9,8 million shares representing 17.64% of the ordinary shares in issue as at the date of the authority.
Prosus and Naspers continued with their open-ended share repurchase programmes. During the period 29 January to 2 February 2024, a further 5,769,435 Prosus shares were repurchased for an aggregate €160,87 million and a further 368,725 Naspers shares for a total consideration of R1,17 billion.
Three companies issued profit warnings this week: Italtile, Impala Platinum and Anglo American Platinum.
Two companies issued or withdrew cautionary notices. The companies were: Ayo Technology Solutions and MultiChoice.
Mazars, the international audit, tax and advisory firm, has released its global financial results for 2022/2023. This is the third consecutive year the firm has achieved double-digit growth across all services (both audit and non-audit). Despite ongoing market uncertainty, revenues are up 13% on last year, reaching €2.8 billion in fee income.
Third consecutive year of double-digit fee income growth achieved across all service lines.
13.3% year-on-year organic growth, demonstrating the resilience and adaptability Mazars has built through its integrated partnership model operating in over 100 countries and territories.
Revenue contributions of 43% audit and 57% non-audit emphasise the balance and strength of the firm’s multidisciplinary strategy to grow with purpose.
“Our growth in the African markets has been driven by our commitment to independence, quality, service delivery, innovation and a focus on key sectors. As a Top 6 firm in Africa we are a credible alternative in a market that is looking for trusted partners that can add value to clients,” says Anoop Ninan, CEO, Mazars in South Africa
The firm’s global results follow the recent news of its plans to create a new top ten global network later this year with US accounting firm FORVIS.
Hervé Hélias, Chairman of the Executive Board at Mazars Group said: “It’s been another successful year with 13% growth demonstrating the strength and relevance of our unique integrated partnership model. The quality of our multidisciplinary offering sets us apart, enabling us to better serve our clients, attract the best talent and serve the public interest”.
“Building resilience has been important off the back of an eventful year and in which organisations continued to be tested. While it’s been a demanding environment, we have invested purposefully to support international growth and I’m pleased that this has remained strong. We understand the challenges our clients face now and looking ahead in the realms of international compliance, financial and non-financial reporting imperatives, and information systems security, and we are set to support businesses to achieve their ambitions.”
Growth across our regions and service lines
Performance across Europe (+15.3%) and North America (+21.4%) continued to be strong, particularly in France, Germany, Ireland, Italy, the Netherlands, Portugal, Spain, Switzerland, the UK and the US. Latin America has shown impressive results this year, as our fastest growing region, with 25.8% growth.
The double-digit growth of the firm’s service lines for the third consecutive year shows a clear focus on its strategy and recognition of the increasing pressures felt by clients worldwide. As a result, sustainability services and our consulting services are the most rapidly growing offerings at 71% and 21.3% respectively.
Hélias comments: “The opportunities we have pursued expand the scale of which we can deliver value for our clients throughout the world, as a trusted partner of their business. There aren’t enough players in the market to support organisations, especially as more obligations are placed upon them. There’s a lack of choice in the market and we’re building an organisation capable of filling that void, helping clients avoid the risk of becoming audit orphans. As auditors and advisors, we are an essential element in the chain of trust in our economies, helping to secure the health of financial markets to the benefit of society.”
With this objective in mind, Mazars continues to expand in new territories with new offices recently announced in Finland, Panama and Togo. In December 2023, the firm also appointed 139 partners from 41 countries, of which 31% are women.
Beyond financials – supporting business with lasting impact
The most recent Mazars C-suite barometer, conducted at the end of 2023, highlighted that technology and sustainability continue to have the biggest impact on businesses. Leaders have been under consistent pressure to digitise their business, evolve their sustainability strategies and invest in talent that will change the way they work.
Helias continued: “We’ve doubled down on our sustainability services to support our clients with their transformation and to provide assurance on non-financial information, which are increasingly expected by stakeholders. This is in line with our purpose to help build the foundations of a fairer, more prosperous world.”
“Overall, our performance and success in the last year would not have been possible without the dedicated involvement of our teams. As we step into a new year, we are excited by the opportunity to advance the scale of our offering through the new pioneering network with FORVIS in June and, more than ever, we are committed to helping our clients confidently build and grow their businesses.”
Get the latest recap of JSE news in the Ghost Wrap podcast, brought to you by Mazars:
Lesaka’s losses have narrowed considerably (JSE: LSK)
This platform still has much scaling to do, though
With a change in leadership underway at Lesaka, outgoing CEO Chris Meyer can point to a group that is now profitable at operating income level. For the quarter ended December 2023, the company grew revenue by 13% in rand and achieved operating profit of R42.5 million, which is much better than an operating loss of R38.4 million a year ago.
Notably, the operating profit includes R17.6 million in non-cash gains, but at least it’s still in the green.
The platform needs to scale further though, as group losses were R50.8 million in this quarter. Again, that’s a lot better than a loss of R116.5 million in the comparable quarter.
Like all great tech businesses, adjusted EBITDA is the metric of choice. The Merchant Division reported adjusted EBITDA of R162.9 million (up 2%) and the Consumer Division reported adjusted EBITDA of R55.2 million (up 445% – or more than five times higher than the comparable quarter). Also like all great tech businesses, the adjustments in adjusted EBITDA should be treated with caution if you’re thinking of investing. Always have a proper look.
The net group to adjusted EBITDA ratio is down to 2.7x vs. 3.6x a year ago.
The company has reaffirmed guidance for FY24 (with the second quarter now behind them) of adjusted EBITDA between R680 million and R740 million. This doesn’t include the acquisition of Touchsides (the tavern-focused business announced this week as an acquisition from Heineken) or any other potential deals.
Sappi swings into a headline loss (JSE: SAP)
If you enjoy a low stress life, this sector isn’t for you
The paper industry is surely one of the most cyclical industries around. As the forces of supply and demand play out, the leading companies in this sector are subject to nauseating swings in profitability.
For example, Sappi swung from HEPS of 34 US cents in the quarter ended December 2022 to a headline loss of 23 US cents for the quarter ended December 2023. The net asset value fell 10% year-on-year, as the balance sheet bore the brunt of EBITDA falling 46% and profit coming in as a negative. Net debt only reduced by 2% over the year.
It’s perhaps worse than you think, as the company has now started including fair value price adjustments on the plantations in South Africa in EBITDA. Although this is in line with peers, it takes EBITDA further away from being a useful cash proxy. It also helped out by $26 million in this period on EBITDA which fell from $290 million to $156 million, so the drop in true operating profit was worse than the high level numbers suggest.
Selling prices for the quarter were stable for most products, so a drop in volumes of 12% couldn’t be recovered, despite improvements made to operating costs to try mitigate the impact.
If you’ve been following the news around Sappi, you’ll know that the company has been decreasing exposure to declining graphic paper markets. This has played out in the closure of European capacity, which means the continuing operations in Europe will be kept busier than before.
Net debt might be down year-on-year, but it’s higher quarter-on-quarter as this was a quarter of net cash outflow rather than inflow. In a period of higher capital expenditure, the last thing Sappi needed was poor profitability.
The outlook also isn’t great, with Sappi anticipating ongoing weak demand for products. There are some areas that are more positive, but the overall picture isn’t ideal. Cost inflation is also a risk.
The guidance at this stage is for EBITDA for the second quarter of the year to be similar to this quarter. Although there’s still plenty of debt going around, it looks as though Sappi will continue paying dividends.
Spear raises R313.5 million in new equity (JSE: SEA)
The company is taking advantage of recent share price strength
Spear REIT has undertaken a private placement that will inject R313.5 million in new equity into the group. The issue price is R8.35 per share, which is a premium of 0.36% to the 30-day volume weighted average price of the shares. It’s rare to see a fund achieve a placement of shares at a premium rather than a discount, so this talks to the quality of the Spear portfolio.
The proceeds will be used to reduce debt, creating headroom to look for acquisitions of ideally industrial and retail assets in the Cape Town Metropolitan area. The company looks for national tenants and returns that are above Spear’s weighted average cost of capital.
Following the private placement, the group loan-to-value ratio will be 33% to 34%. This excludes the pending transfer of the Liberty Life building, which will further reduce this ratio.
Vodacom back to the drawing board on Please Call Me (JSE: VOD)
The market doesn’t seem to be too worried though as the share price has hardly moved
Social media has been ablaze with the news of the Supreme Court of Appeal judgment in the Please Call Me matter. The offer by Vodacom to Kenneth Nkosana Makate of R47 million as reasonable compensation for the idea was rejected by Makate and an application was made to the High Court to have that offer set aside. This has been going on for years now, with the original Constitutional Court order having been made in 2016!
The High Court ruled in favour of Makate and the Supreme Court of Appeal has dismissed Vodacom’s appeal in this matter. Naturally, Vodacom will now go to the Constitutional Court to try and have the decisions overturned.
To show you just how long these things take, Vodacom’s application for leave to appeal was made in February 2022. It has taken two years for a decision at the Supreme Court of Appeal.
How long will it still take before the matter is settled?
Little Bites:
James Templeton (CEO of Castleview Property Fund JSE:CVW) has been appointed as a non-executive director of Collins Property Group (JSE: CPP). Castleview currently has a significant minority stake in Collins.
Anglo American (JSE: AGL) announced that its Minas-Rio iron ore and Barro Alto nickel mines in Brazil have achieved the IRMA 75 level of performance, which is an important accreditation in responsible mining. These are the first iron ore and nickel mines in the world to complete an IRMA audit.
Argent Industrial (JSE: ART) has thus far repurchased 1.77% of shares outstanding since the general authority given by shareholders at the AGM in August 2023. R15.06 million has been invested in this regard at an average price of R15.22 per share. The current share price is just under R17.
Buka Investments (JSE: BKI) has appointed Pumla Tladi as Chairperson of the Board. She is currently a member of the board. The company also announced that the acquisition of Socrati Footwear is still making progress and shareholders will be kept informed on further developments. The company is also identifying another opportunity in the retail industry, with no further details given.
Labat Africa (JSE: LAB) is still in the process of appointing new auditors, having terminated the services of the previous auditors in January. The shares are currently suspended from trading.
They say hell hath no fury like a woman scorned – especially when that woman goes off to build a business that becomes your direct competitor.
In one of the most memorable scenes from Quentin Tarantino’s seminal revenge epic, Kill Bill, we witness the yellow-jumpsuit-wearing, katana-wielding heroine (a wronged woman mysteriously referred to only as “The Bride”) slice through scores of henchmen on her quest to, well, kill Bill. It was hard not to envision this scene when I first saw the footage of Whitney Wolfe Herd, clad in yellow from head to designer heels, ringing the bell at the launch of the Bumble IPO in 2021.
The similarity goes beyond the blonde hair and the yellow outfit. Like The Bride, the Bumble founder and CEO was a woman scorned. And just like The Bride, she didn’t just roll with the punches – she chose to dish out a few of her own.
Love’s keen sting
In April 2014, Whitney Wolfe Herd was in a bad place. Her tumultuous relationship with one of her Tinder co-founders had soured to the point where her workplace had become too toxic to endure. Unable to see a way out, she resigned from the app that she had helped to put on the map. By 2015, credit for her contributions to Tinder – which included coming up with the name of the app and marketing it extensively on college campuses – was practically erased.
Things had started off well enough: the Tinder dream team, composed of Wolfe Herd, Sean Rad, Chris Gulzcynski and Justin Mateen, first met in 2012 while working together on the startup Cardify, a project led by Rad through Hatch Labs IAC incubator. While Cardify was eventually abandoned, it provided the springboard for the development of Tinder.
Wolfe Herd became vice president of marketing for Tinder, reporting directly to Mateen. She and Mateen dated on and off throughout 2013 until, according to her statements, he became “verbally controlling and abusive”. When the relationship finally ended, Mateen turned the remaining founders against Wolfe Herd. Wolfe Herd approached her co-founder Sean Rad for help, sharing screenshots of harassing messages that Mateen had sent her during work hours. In response, she was told that the continuation of her employment was “unlikely at that point”.
Unsatisfied with this outcome, Wolfe Herd chose to resign. Three months later, she filed a lawsuit against Tinder for sexual harassment, referencing Mateen’s messages, as well as incidents where she was called a slut and a liar. By the end of the same year, she reportedly received more than $1 million as well as stock as part of a settlement.
Out of the ashes
Unfortunately, this was not the end of the abuse, which flooded into Wolfe Herd’s DMs from every corner of the internet as news of the lawsuit and settlement went public. Strangers called her a gold digger and a dumb blonde, an opportunist who rode the coattails of her male co-founders and then “Me Too”-ed them to get the big payout. Fed up with the unsolicited negative messages that she kept receiving, she conceptualised an app where women could compliment each other. But before she could build it, she was approached by Badoo founder Andrey Andreev with a different suggestion: to build another dating app.
At first, Wolfe Herd baulked at this idea – but the more she thought about it, the more it made sense to her. Harassment from an abusive ex is what had derailed her career in the first place. And now these negative comments in her inbox were making her doubt herself. What if there was a way to create a dating app that could protect women from these things, the way that she would have wanted to be protected when she needed it?
And so, the characteristic that distinguished Bumble from its peers was born. Wolfe Herd agreed to come on board, but only on the condition that she could build a feminist dating app, where heterosexual matches required the woman to make the first move before anything progressed. Wolfe Herd recruited two fellow Tinder departees to help design the interface, and in December 2014, Bumble was launched.
Conviction fosters change
From the start, one of the driving forces behind Bumble’s success and growth has been its founder’s dedication to creating a safer dating app for women. Guided by her personal experience and her vision of what online interactions could look like, Wolfe Herd has introduced groundbreaking ideas, both online and in the real world.
Unlike her counterparts in the tech space, who often resort to making excuses when confronted by the actions of users on their platforms, she embraces a proactive approach, recognising her company not just as a digital entity but as a powerful instrument capable of influencing and moulding human behaviour. It is the first major social platform to embrace behavioural guardrails and content moderation, not as an extra or a fix, but as part of its business model. And it’s not just talk either.
In 2019, Wolfe Herd testified before the Texas House Criminal Jurisprudence committee about the prevalence of unsolicited nudes being sent to women on dating apps, in an effort to get the practice outlawed. “If indecent exposure is a crime on the streets, then why is it not on your phone or computer?” she asked lawmakers.
In 2020, Bumble encountered 880,000 instances that ran afoul of their user guidelines, as disclosed by a representative from the company. In response, the platform took a range of measures, from issuing written warnings to imposing temporary suspensions, and in severe cases, permanently blocking users. Notably, Bumble employs cutting-edge artificial intelligence to proactively identify and tackle violations, such as hate speech, without solely relying on user reports. In other words: Bumble doesn’t need a victim to report a transgression – their AI is capable of registering a transgression without being flagged by a user.
The primary objective behind leveraging AI is to cleanse the platform proactively and preemptively identify individuals prone to disruptive behaviour before they exhibit it. A notable facet of this AI system is its ability to scan profiles for potentially harmful content, such as images depicting guns and swastikas. Furthermore, the AI is trained to recognize over 700 “stop words,” encompassing terms associated with suicide and a multitude of racial slurs, within chat interactions.
When the AI detects a violation, it doesn’t operate in isolation; instead, it triggers a referral process to a dedicated team of 2000 human moderators. These moderators are tasked with evaluating the reported behaviour and determining the appropriateness of imposing measures like account blocking.
Beyond racial slurs and sexual harassment, Bumble has embarked on a progressive initiative to combat body shaming on its platform, unveiling a ban on “unsolicited and derogatory comments made about someone’s appearance, body shape, size, or health.” This marks a significant step towards fostering a more positive and respectful online environment.
For women seeking love online, Bumble’s offering seems like an oasis; a welcome reprieve from unwanted advances and uninvited nudes. For men who are keen to prove that their intentions are pure, it is an equally attractive alternative to the Wild-West-like landscape of other dating apps.
So, that means the money is rolling in, right? Not necessarily.
But morals don’t always lead to money
In September 2019, Tinder and Bumble were the first and second most popular dating apps in the US, with monthly user bases of 7.9 million and 5 million, respectively. Despite everything that Bumble was doing to differentiate itself from its peers, the company was still lagging behind by the time it went public in 2021.
A month after the IPO, Bumble was valued at more than $14 billion. As founder and CEO, Whitney Wolfe Herd became the youngest woman ever to take a company public, at the age of 31. For feminists everywhere she cut the picture of success: a beautiful, strong young woman, ringing the Nasdaq bell with her 18 month old son perched on her hip.
But it seems like the market was less enamoured with this image. After a $75 peak just after listing, the share price zigzagged around the mid-fifties and high forties before dipping all the way down to $18 a year later. While market performance alone isn’t enough to give us the full picture of what’s going on inside a business, what’s more telling is probably the fact that Bumble has sought to turn the quintessential “Tinder experience” on its head, but has not yet managed to overtake Tinder in the ranks of most-used dating app.
In fairness to Bumble, Match Group (the owner of Tinder) is down 77% over the same period in which Bumble has lost 82% of its value, so there’s a broader problem here.
In November 2023, Wolfe Herd announced that she would hand over the CEO reins to Lidiane Jones. The market showed no big reaction to this news, and the share price continued to trade steadily sideways as it had been for most of the year before.
What’s the lesson to take from this story? Perhaps a reminder that you can build a business that really means something to people if you are smart enough to fix a problem that you yourself have encountered. Build the business that you needed, as it were. But – and this is a big but – don’t expect the strength of your convictions to guarantee success. Good nature and good ideas will take you far, but at the end of the day, businesses still need to be run like businesses.
And when the market is expecting profits, you need to deliver them.
About the author:
Dominique Olivier is a fine arts graduate who recently learnt what HEPS means.Although she’s really enjoying learning about the markets, she still doesn’t regret studying art instead.
She brings her love of storytelling and trivia to Ghost Mail, with The Finance Ghost adding a sprinkling of investment knowledge to her work.
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