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

Vanessa Aitken
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Who’s doing what in the African M&A space?

DealMakers AFRICA

Adiwale Fund I has acquired a minority stake in Senegalese consumer goods distribution company, Global Action. Financial terms were not disclosed.

The Minerals Income Investment Fund of Ghana (MIIF) acquired a 6% stake in the Ewoyaa Lithium Project for US$27,9 million plus 6% of the ongoing exploration and development costs. The agreement also saw MIIF take an c.3% stake in Atlantic Lithium for $5 million. Piedmont Lithium and Atlantic Lithium are partners in the project.

Tana Africa Capital has exited its investment in International Education Group (IEG) to Globeducate. No financial terms were disclosed. IEG was established in 2015 and is now a network of four schools – three in Morocco and one in the Netherlands.

Egypt’s National Service Projects Organization (NSPO) has acquired up to 24% in three Bashay Steel subsidiaries for EGP10 billion. The stakes in Egyptian Sponge Iron and Steel Company, Egyptian American Steel Rolling Company and International Steel Rolling Mills were acquired on the over-the-counter market of the Egyptian Stock Exchange.

Oryx Energies S.A. has strengthened its footprint in Senegal, where it has been present since 1989, by acquiring a majority stake in Puma Energy Senegal S.A. for an undisclosed sum. Puma Energy Senegal will be renamed Oryx Gaz Sénégal S.A.

WhoGoHost, a Nigerian web hosting company, has acquired cloud communications startup, SendChamp. The value of the deal was undisclosed but was settled by way of cash and equity.

Uganda’s agri-loan startup, Emata, has secured a US$2,4 million seed round made up of US$800,000 in equity and $1,6 million in on-lending capital. Investors in the round include Norrsken, Zephyr Acorn, African Renaissance Partners and Draper Richards Kaplan Foundation.

Kenyan fintech Lipa Later has closed a KES500 million private debt placement with undisclosed lenders. The company announced that it was looking to raise an additional KES2 billion in equity and debt to help with its growth plans.

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

SARS’s Authorised Economic Operators Programme: a must for businesses to expand beyond borders

Dyondzo Kwinika and Virusha Subban
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SARS’s Authorised Economic Operators Programme: a must for businesses to expand beyond borders

The global economy demands that businesses expand beyond borders, but they face hurdles from customs and regulatory barriers in other countries and regions which make this expansion challenging. In 2005, the World Customs Organisation (WCO) introduced the Authorised Economic Operator (AEO) programme as part of the SAFE Framework. The aim of the WCO was to establish a global system for identifying private companies that provide significant security assurances regarding their involvement in the supply chain.

The AEO programme serves several important purposes, including preventing international terrorism, improving revenue collection, and facilitating trade. Moreover, the AEO programme aims to establish and enhance Customs-to-Customs network arrangements, which streamline the movement of goods through secure international trade supply chains. The second pillar of the SAFE Framework focuses on Customs to Business arrangements.

In 2015, the WCO released its Customs-Business Partnership Guidance to assist Customs administrations in building favourable and collaborative relationships with businesses. The Customs-Business Partnership Guidance contains precise and inclusive instructions to apply to various situations and conditions. It also presents flexible models that can benefit Customs administrations, regardless of their current dealings with businesses. This comprehensive guide has been thoughtfully structured into four parts, each of which dives deep into the subject matter. The first part explains the processes involved in working with Customs. The second part outlines a step-by-step approach to partnership formation. The third part shares valuable insights and tips from other members. Finally, the fourth part includes advanced ideas and strategies to improve understanding.

Considering the above, the SARS AEO programme adheres to the minimum standards set by WCO under the SAFE Framework and Customs-Business Partnership Guidance.

In May this year, Botswana, Eswatini, Lesotho, Namibia and South Africa, the Member States of the Southern African Customs Union (SACU), signed the Mutual Recognition Arrangement to recognise SACU importers and exporters that have been granted AEO status. The SACU Revenue Administration is also committed to facilitating cross-regional trade and being alert to all its risks, to reduce poverty, inequality and unemployment.

For South African businesses involved in trade within the regional market of the SACU and internationally, there is an opportunity to achieve AEO status. AEO status is available to businesses such as manufacturers, importers, exporters, brokers, carriers, consolidators, intermediaries, ports, airports, terminal operators, integrated operators, warehouses, distributors and freight forwarders. In addition, Small, Medium and Micro Enterprises (SMMEs) within the same trade zone are eligible for the AEO programme. However, SARS Customs approval is necessary before AEO status can be achieved. The AEO programme is divided into different accreditation levels, as explained below.

Level 1 Accreditation AEO: Compliance

In 2017, SARS launched AEO Compliance by granting accreditation status to 28 traders, including importers and exporters. In July 2021, section 64E of the Customs Act 91 of 1964 (Customs Act), was amended to widen the scope of participation in the SARS AEO programme, allowing more role-players in the supply chain to participate. In addition, these amendments align with the standards of Pillar 2 of the WCO Framework of Standards, which introduces a safety and security element that adheres to international best practices. As a result, entities or traders in international trade can participate in the voluntary Level 1 Accreditation programme with SARS Customs. This will enable them to maintain standards in their internal processes and computer systems. As of 31 January 2022, there were 144 accredited traders.

Certain requirements must be met for the above entities or traders to acquire accreditation. These include demonstrating a compliance record spanning three years before application. They also include maintaining a computer system that aligns with the user agreement and knowing customs and excise laws and procedures. Audited financial statements for the last three years must be provided as alternative evidence of financial viability. Additionally, outstanding taxes, interest, penalties or other amounts due and payable to SARS must be paid. All tax returns and documents must be submitted for tax purposes.

This level offers several benefits, including lower security amounts, fewer inspections, and the ability to use the unique SARS AEO logo to brand the business.

Level 2 Accreditation AEO: Safety and Security

Level 2 Accreditation, or the AEO Safety and Security programme (AEO-S) is a voluntary programme designed to enhance supply chain security. It utilises a documented process to identify and mitigate risks throughout the international supply chain. In July 2021, the AEO-S programme started with one trader.

To be eligible for consideration, applicants must ensure that their premises, buildings and facilities have adequate and appropriate security measures. This is to prevent unauthorised access by individuals or vehicles. Personnel and other individuals accessing the premises must also be protected. Additionally, applicants must identify any business partners involved in the supply chain and ensure that they meet security requirements. Under the applicant’s supervision, cargo and conveyances must be kept secure and their integrity maintained. Applicants must have procedures to mitigate the risk of losing or destroying their records and information. Staff must be trained in recognising potential threats and taking appropriate action. Adequate information technology security measures must be employed to protect the applicant’s information technology systems.

Communication with SARS is necessary in customs matters. Applicants must comply with the latest revision of the King Report on Corporate Governance guidelines, to the extent applicable.

Investing in the AEO-S programme may yield several advantages beyond Level 1 Accreditation for businesses. Benefits may include exemptions from specific customs supervision. They may also include targeted training sessions, and reduced documentary and physical inspections for regulatory compliance and supply chain security risk. In addition, they may include exemptions from security payments.

These are the summarised benefits of becoming an AEO:

Boost international trade: The AEO Programme can help businesses streamline customs procedures, leading to faster and more efficient trade. This can result in increased competitiveness and profitability.

Importance of trust: Trust is crucial to becoming an AEO. By achieving AEO status, businesses demonstrate their commitment to compliance and security standards. This can help to build trust with trading partners and increase collaboration and growth opportunities.

Role of technology: Technology plays a vital role for AEOs; for example, electronic systems enable businesses to manage customs procedures more efficiently, reducing the risk of errors and delays. This can help businesses save time and money while improving their overall performance.

Crucial for small businesses: SMMEs play a vital role in the South African economy, contributing significantly to GDP and job creation. SARS is exploring the benefits of the AEO programme to support and ensure compliance among SMMEs. By becoming an AEO, small businesses can compete on a level playing field with larger companies. They can improve their reputation and access new markets by eliminating barriers to entry, facilitating business growth and enhancing trade. Additionally, AEO status can provide benefits such as expedited inspections and refund claims. It can also provide education on customs and excise, cost savings on security and embargo fees, and leverage on current government offerings.

Foster collaboration across borders: The AEO can facilitate business collaboration across borders. AEOs enjoy mutual recognition of other AEOs in different countries, simplifying procedures and reducing costs. This can help businesses forge new partnerships and expand their operations.

The AEO status accreditation takes effect on the date specified in the accreditation letter or certificate and remains valid for five years. However, if a holder’s registration or license is suspended or cancelled according to section 60(2) of the Customs Act, or if they voluntarily give up their accredited client status and notify the Commissioner, their status will expire before the end of the five-year term. To renew their status, holders must apply no later than 30 days before their expiration date and comply with the Rules under Section 64E of the Customs Act. If the renewal application is not processed before expiration, the SARS Commissioner can extend the validity period.

The AEO programme greatly benefits businesses seeking to grow regionally and internationally, and to improve performance. By becoming an AEO, a business can reap various advantages, such as faster and more efficient trade, improved reputation and trust, and increased opportunities for collaboration. Businesses trading within the regional market of the Southern African Custom Union and internationally are encouraged to take advantage of SARS’ efforts to strengthen global supply chain security and facilitate the movement of legitimate goods through the AEO programme.

Dyondzo Kwinika is a Candidate Attorney and Virusha Subban a Partner and Head of Tax | Baker McKenzie Johannesburg.

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

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

The conundrum of conversion under convertible loan agreements

Njeri Wagacha and Rizichi Kashero-Ondego
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The conundrum of conversion under convertible loan agreements

The financing of start-ups, enterprises in the seed stage, and medium-sized businesses has changed significantly over time, giving investors several investment structuring alternatives based on the financial health and organisational structure of the target business. For various reasons, including the value of the target business and cost-effectiveness, businesses and investors prefer to raise capital using convertible loan notes (CLN) rather than standard equity and debt investment structures during early-stage rounds. CLNs are distinct from other loan note structures in that they can be converted to equity on the occurrence of a conversion event. Parties have numerous conversion event structures at their disposal, depending on the objectives that the investor and the target business hope to achieve. In this article, we explore the CLN model and the various factors that one should keep in mind when drafting a CLN.

Why the CLN?

First, it is important to understand the purpose of the CLN before deciding how, if and when the loan will be converted. There are times when a target firm is cash-strapped and decides to request a loan in the form of a CLN from a third-party investor or an existing shareholder (the Lender), to temporarily resolve its cash flow requirements. Using a CLN may be a quick method for the Lender to guarantee its return without having to go through a due diligence exercise which, in any case, could be lengthy, and which could result in protracted negotiations over transaction documentation. Entering into a CLN ensures that once the loan has been disbursed, if converting to equity is unappealing, the Lender is able to choose repayment over conversion.

As an alternative, Lenders may choose a CLN because it simply gives them more security. After all, if the target business cannot repay the loan, the Lender has the option of becoming a shareholder and transforming the business rather than having to liquidate assets (which the target business may not have) to recoup its investment.

A Lender may also decide to enter into a CLN when unsure of the company’s future performance and, therefore, may choose to stagger its investment into the target business.

Conversion

A CLN essentially gives the Lender and the target business flexibility to meet their needs. The following are some considerations for both parties:

a) Maturity date: the parties will agree on a date by which the loan will mature, known as the maturity date. On this date, depending on the negotiating power of each, the parties can decide if the loan automatically converts, whether the Lender has the option to convert or whether the right of repayment accrues. If acting for the company, the effect of increasing the shareholding, seeking shareholder approval, and potential dilution of the shareholders versus the interest payable on the loan will be key considerations.

b) Equity financing round: if the valuation of the target business is of concern, an equity financing round should be considered as a conversion event by the Lender. An equity financing round is essentially the process of raising capital through the sale or issuance of shares. Depending on the industry of the target business, different parameters can be set by the Lender and the company to the equity financing round. The parameters can be pegged on the number of Lenders participating in the equity financing round or the amount that is raised in the equity financing round. Given how the target firm is valued, the Lender should provide itself with a solution that offers it more security in its investment.

c) Change of control event: the exercise of control over the target business is an element that can be considered as a conversion event. The Lender can opt to convert the loan to equity on the occurrence of a merger, amalgamation, restructuring, sale of assets or execution of an agreement that gives a person or an entity significant control. This option provides the Lender with the flexibility to discern whether they should convert depending on how the company evolves.

d) Event of default: these include events that would ideally result in the termination of the CLN, such as misrepresentation, insolvency, material adverse change, and breach of representations and warranties. On the occurrence of the event, the Lender can opt to terminate the CLN and demand immediate repayment or convert the loan to equity. When negotiating the events of default, the factors to be taken into consideration by both the Lender and company is the nature of the business and the operating values of the Lender; for example, anti-money laundering considerations and the undertakings provided by both parties within the CLN. Essentially, the parties should consider the elements that are non-negotiable.

The value of the loan upon disbursement and the value upon repayment or conversion are additional factors to take into account when deciding whether to convert or demand repayment, specifically:
a) what is the interest chargeable? Is it per annum? Is it cumulative? Does it accrue until full repayment has been made or conversion has occurred?; and
b) the number and value of shares to be issued. Is it a set number of shares? Will a valuation need to be conducted? If so, what are the parameters? Will the target business and Lender benefit from a valuation cap or a discount?

These provisions need to be carefully thought out and should be well articulated and clearly drafted in the CLN.

Food for thought

Despite the benefits of a CLN, which include having the security of acquiring equity, debt ranking higher than equity in the event that a company becomes insolvent and allowing the target business to maintain its shareholding while obtaining financing, the primary risk emanates from ambiguity arising from a poorly drafted CLN.

Given the nature of companies seeking loans in the form of CLNs, the underlying risk is exponential. As most companies are generally in their formative stages, the uncertainty of success should be a concern to negate in the CLN. To counter the risks, the Lender and the company need to consider the purpose of the CLN vis a vis their goals, and accurately structure it to protect themselves against foreseeable risk.

Notably, the CLN has grown in popularity as a result of its adaptability and lack of regulatory requirements for structuring. Although we anticipate that the CLN will provide target businesses with loans at lower interest rates, poor drafting and structuring could result in a deadlock between the Lender and the target business. In this respect, we advise that careful thought be given to the structure of the CLN based on the needs and goals of the target business and the Lender.

Njeri Wagacha is a Partner and Rizichi Kashero-Ondego a Senior Associate | CDH Kenya

This article first appeared in DealMakers AFRICA, the continent’s quarterly M&A publication.

DealMakers AFRICA is a quarterly M&A publication
www.dealmakersafrica.com

Ghost Bites (Attacq | Gemfields | Growthpoint | Lesaka | Old Mutual | Momentum Metropolitan | Pan African Resources | Putprop | Universal Partners)

The Finance Ghost
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Ghost Bites (Attacq | Gemfields | Growthpoint | Lesaka | Old Mutual | Momentum Metropolitan | Pan African Resources | Putprop | Universal Partners)

Listen to the latest episode of Ghost Wrap here, brought to you by Mazars:

Attacq matches its interim distribution (JSE: ATT)

Growth in cash distributions is what investors want to see

In a trading statement dealing with the year ended June 2023, Attacq flagged an expectation of a final distribution per share of 29 cents. This is the same as the interim distribution, so the full year distribution of 58 cents is 16% higher than the distribution per share in the prior year.

This has been supported by an increase in distributable income per share of between 12.5% and 15.5%.

Detailed results will be out on 28 September.

This announcement came out after the market closed. On a closing price of R8.25, Attacq is on a dividend yield of 7%.

A wobbly at Gemfields? (JSE: GML)

After seemingly endless good news from the company, here’s something to chew on

The good news is that Gemfields believes that the market is “very healthy” based on demand at the commercial and low quality ruby auction over the past couple of days. A commercial quality emeralds auction is also underway and results will be released soon.

The unfortunate news is that the recent emerald production at Kagem hasn’t been to the standard that Gemfields was hoping for. These are naturally occurring gemstones and nature is unpredictable. The company has decided to pull out of a high quality emeralds auction in November 2023, as they would rather not participate than offer a sub-optimal product.

After what feels like a very long string of positive updates, this is a reminder that mining is never easy.

This announcement came out after the market closed, so keep an eye on the share price on Thursday morning.

These conditions aren’t good for Growthpoint (JSE: GRT)

And the outlook for FY24 is particularly worrying

Growthpoint has released results for the year ended June 2023. The distributable income per share and dividend per share are both up by 1.3%, so the payout ratio is consistent. Net asset value per share limped higher by just 0.3%.

A lot of progress has been made in reducing the size of the South African exposure, with 29 properties worth a total of R1.5 billion disposed of in this period. Since 2016, they’ve sold off R11.2 billion of local exposure. Only one property worth R18 million is held for sale as at the end of the period.

The capital-light business Growthpoint Investment Partners has a happier story to tell, with assets under management up by 14.7% and management fees up from R67.2 million to R98.0 million. They raised R750 million from new investors in the healthcare and student accommodation funds.

Offshore dividend income increased by 7.6% in rand terms. The offshore business is 45.8% of group assets and contributed 29.1% to distributable income per share.

With negative valuation movements in Growthpoint Properties Australia as a major contributor to this move, the loan-to-value (LTV) ratio deteriorated from 37.9% to 40.1%. The South African LTV is more conservative than the group LTV, sitting at 32.9% vs. 32.0% in the comparable period.

It’s also worth noting that 77.7% of the South African borrowings carry a fixed rate. The weighted average maturity for local borrowings has increased from 2.9 years to 3.5 years.

The only really sparkling part of the story is the V&A Waterfront, which reported a 21.5% increase in Growthpoint’s share of distributable income. Crown jewel properties are still great assets.

The problem is that conditions in South Africa remain tough, with negative reversions on leases and a decline in renewal success. For South Africa specifically, funds from operations per share (an important industry metric) fell by 4.4% this year.

The outlook for FY24 isn’t great at all, with an expectation for distributable income per share to drop by between 10% and 15%. The group will try and maintain a payout ratio of 82.5%. To help see the group through difficult times, Norbert Sasse has agreed to stay on as CEO until 31 December 2026.

The dividend per share for the year of 130.1 cents and the closing price of R11.40 means that the company is trading on a yield of 11.4%.

Lesaka beats its revenue guidance (JSE: LSK)

Constant currency growth is especially strong

Lesaka is listed on the Nasdaq as well as the JSE and reports in dollars, despite revenue being earned in South Africa. This obviously puts the growth rate under eternal pressure because of rand weakness, perfectly demonstrated by group revenue growth of 9% in dollars vs. 32% in constant currency.

The Connect Group has been included in the result for the full quarter and is outperforming according to Lesaka. The consumer division is also in the midst of a turnaround.

The net loss of $11.6 million this quarter included non-cash charges of $10.6 million, so the group is nearly break-even from a cash profits perspective. Cash generated by operating activities saw a healthy positive swing year-on-year.

The company talks about a “transition from turnaround to growth” and has lots of associated bullish commentary in the announcement. The market clearly liked it, closing 8.7% higher.

Seeing double at Momentum Metropolitan (JSE: MTM)

Financial results and an operating update were released separately

No, I’m not sure why Momentum Metropolitan didn’t release a single announcement that combines the financials for the year ended June and the operating update for the same period. Practically simultaneously on SENS, they released these things separately.

The announcements are extremely detailed and you should work through them if you have a position here. I’ll just touch on the interesting highlights.

Normalised HEPS increased by 19% to historic high levels, driven by operating profit increasing by 31% and the investment return dropping by 35%. Once you read Old Mutual further down in Ghost Bites today, you’ll see that this is at odds with what we have seen at other financial services businesses. This is because Momentum Metropolitan has a sizable venture capital portfolio, which saw valuations come off sharply year-on-year.

One of the businesses that struggled operationally was Momentum Insure, with high claim ratios and premium increases that lagged rising claims inflation. Something interesting that I’ve learnt in the past couple of years is that short-term insurers don’t like an environment of rising inflation, as premiums tend to be adjusted once a year rather than monthly. This even led to an impairment being recognised on Momentum Insure.

Another important point is that although new business margin was unchanged at 0.9%, the value of new business fell by 4% because of lower new business volumes and other factors.

If you’re wondering where the boost to operating profit came from, look no further than Momentum Metropolitan Africa where operating profit jumped from R8 million to R508 million!

Return on equity was 22.3%, down from 22.7% in the prior year.

Finally, the dividend increased by 20% for the year.

Old Mutual releases complicated earnings (JSE: OMU)

The latest victim of IFRS changes is the insurance sector

The introduction of IFRS 17 is causing significant distortions and complexities in the results of insurance groups. Those results are already pretty specialised and difficult to understand on a good day, so investors in this sector are in for some brain gym this year.

It’s a little bit difficult to know where to look in this Old Mutual announcement dealing with the year ended June 2023. The ranges are also pretty wide, like results from operations that could be anything between 7% lower and 13% higher. In other words, they will probably be pretty flat, with good and bad news within that number.

Adjusted headline earnings per share is expected to be between 11% and 31% higher. This is probably the right metric, as it considers restated numbers on an IFRS 17 basis and also adjusts for earnings in Zimbabwe.

If you remember nothing else, at least remember that although operational performance at Old Mutual doesn’t seem to have shot the lights out, the environment of higher interest rates and a recovery in equity markets means that investment returns on shareholder funds have improved. This is what drove the headline earnings per share performance.

The rand got Pan African out of trouble this year (JSE: PAN)

Production was significantly lower year-on-year

Pan African Resources is listed in London and on the JSE, with an ADR programme in the US as well. To add to the United Nations feel, the company also reports in dollars.

It was the rand that really saved the day, with the rand gold price having a much better year thanks primarily to rand weakness. Gold production fell sharply by 14.8%, so a difficult year in the gold price would’ve been an ugly outcome indeed.

It still wasn’t a happy year though, with HEPS down by 19.5% to US 3.15 cents per share. A dividend of US 0.95592 cents per share has been put forward for approval. It looks like the final dividend is R0.18 per share and the dollar amount will fluctuate, rather than the other way around.

From the current production level of 175,209oz, the company hopes to improve to between 178,000oz and 190,000oz next year. That’s still well down on 205,688oz in FY22.

The other area for improvement is in the high-cost operations Sheba and Consort Mines, which account for 81% of annual production. This is why group level all-in sustaining cost (AISC) is $1,327/oz despite the lower-cost operations running at $1,152/oz. Group level guidance for FY24 is $1,350/oz.

The balance sheet looks fine, so they have a decent platform off which to boost production and hope for the best with the rand gold price.

Putprop inches forwards, on HEPS at least (JSE: PPR)

We will need to wait for full results on this one

In a further trading statement dealing with the year ended June 2023, Putprop has noted that HEPS will be up by between 0% and 10%. But interestingly, earnings per share (EPS) is down by between 77% and 87%.

Results are due on 14th September i.e. the day after this trading statement. They will need to be considered carefully to understand the difference between EPS and HEPS.

Universal Partners reports a drop in NAV per share (JSE: UPL)

It’s not as bad as it looks though, as there was a special dividend

Investment holding companies are judged by net asset value (NAV) per share. When a dividend is paid to shareholders, this reduces the NAV and thus the NAV per share. In assessing performance, it’s important to keep this in mind. Just looking at NAV per share ignores dividends and thus the total return.

After disposing of Dentex Healthcare and proving that not all dentistry-related activities are painful, Universal Partners paid a dividend of 10 pence per share. This means that NAV would’ve been £1.396 per share without the dividend vs. £1.438 at the end of June 2022. That’s a drop of 3% year-on-year, adjusting for the dividend.

If we look into the portfolio, the group has retained £35.2 million worth of exposure to Portman Dental Care, which is the group that merged with Dentex. This makes it a minority shareholder in one of the largest dental care platforms in Europe.

The group also has a stake in Workwell, a payroll solutions and accounting company in the UK that is trading behind budget because of the tough conditions in the UK and Europe. Still, because of the conversion price on debt into equity, the value has been written higher in Universal’s books.

Another company in the portfolio that is battling headwinds is Xcede Group, a recruitment specialist in the IT and sustainable energy space. While you would think that this makes it a gold mine, there’s been a significant slowdown in hiring activity. There’s a new CEO and CFO in the business, so we will see what happens here. Universal had to subscribe for further loan notes to support working capital. The equity investment has been impaired.

SC Lowy is a credit investing and lending business and achieved a positive return in its fund, putting performance ahead of the benchmark. Fundraising is a challenge in this environment but profits are up.

I chuckle a little every time I read about Propelair, a company that claims to have reinvented the toilet. It uses just 1.5 litres of water per flush vs. 9 litres from a traditional toilet. As exciting as that sounds, the business plan also seems to be in the toilet as the company is trading well below where it should be. The company is raising more capital and Universal Partners isn’t participating in that raise, leaving the value at a nominal £1. Yes, one pound.

£2.3 million worth of investment management fees to Argo were accrued during the year. Interestingly, the fees aren’t paid unless there is a realised exit in the portfolio. So this is purely an accounting entry.

Little Bites:

  • Director dealings:
    • The market doesn’t really understand IFRS, but it does understand a show of faith by directors. We are finally seeing some purchases of shares by the key executives at Blue Label Telecoms (JSE: BLU), with an associate of Mark Levy acquiring CFDs with a value of R3.8 million.
  • Capital & Regional (JSE: CRP) announced the results of the scrip dividend election, with shares representing 2.3% of current issued share capital to be issued in lieu of cash dividends.
  • For the junior mining enthusiasts, Copper 360 (JSE: CPR) has significantly upgraded its mineral resource and has put out the bullish view that expenditure on the plant currently being built is on schedule for November this year and 8% under budget. Mine development is expected to commence in the final quarter of this year.
  • The date for the release of the amended business rescue plan for Tongaat Hulett (JSE: TON) has been extended to no later than 31 October 2023, with an adjournment of the related meetings to no later than 30 November 2023.

Tax Data Analyst – Singular Systems / Jhb(Hybrid)

Sponsored Content
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Tax Data Analyst – Singular Systems / Jhb(Hybrid)

Position: Tax Data Analyst (Intermediate level)
Experience: Minimum 2 years
Location: Johannesburg, South Africa
Industry: Financial Services

Singular delivers customised software solutions to businesses across a range of industries.

  • Our unique value proposition offers clients operational optimisation, and the technological and financial expertise and infrastructure to support their long-term growth and success.
  • We pride ourselves on being trusted advisors to many leading businesses and institutions, both in South Africa and abroad, and partner with these businesses to find better ways of solving complex challenges.

We firmly believe that building a successful long-term career is a shared responsibility between the company and the individual. We understand that true professional growth and fulfillment can only be achieved when both parties actively invest in each other’s success.

Here, you won’t be just a number; you’ll be an integral part of a close-knit community that encourages personal growth, specialisation, and expertise.

Who we’re looking for:

We are looking for an intermediate level Data Analyst who loves working with financial data. You will join our growing specialised tax team, with your core focus initially being on supporting our existing clients using our data intensive proprietary software application CGT Express.

The position relates to tax reporting, specifically capital gains tax, for portfolio management and life insurance companies. Some of the day-to-day support tasks might include pattern analysis and recognition on transactional data and writing queries to update data for reconciliation and reporting purposes.

We are looking for individuals who share our core values of fairness, integrity, care, collaboration, gratitude, and excellence. We want enthusiastic, self-starters who want to build a long-term career at Singular and enjoy the shared success that comes with consistently creating value for our clients.

We value individuals who are not easily swayed by the allure of constantly searching for the next best thing or a slightly bigger paycheck. Our collective success (which includes your long-term financial gain) is built upon a solid foundation of reliability, passion, and mutual growth.

What you’ll bring:

Financial analysis and technical skills

  • Investigation and reconciliation into transactional data.
  • Resolution of data anomalies.
  • Communication and liaising with clients with regards to the resolution of transactional anomalies.
  • Accurate data cleansing for reporting and analysis.
  • Ability to write SQL queries advantageous.
  • Understand simple client database design.
  • Interest in growing software development skills as it relates to data / integrations as the demands of the role increases based on personal growth and progression through our data engineer career path.
  • Proficiency in Microsoft Access, Excel, and SQL advantageous but not critical as this will be trained on the job.
  • Ability to own, execute and test tasks according to the logical specifications.

Other competencies

  • Enthusiasm and curiosity for some of the following will differentiate you in this field: tax, software, data warehousing, financial markets and securities.
  • A positive attitude towards learning and growing.
  • Problem-solving aptitude.
  • Deadline driven.
  • Ability to work in a team environment.
  • Good project management ability will be advantageous.
  • Ability for public speaking for ad-hoc presentations and client workshops is advantageous.
  • Good telephonic and written etiquette.Professional appearance and demeanor.
  • Ability to work in agile or Scrum environments would be an advantage.
  • Strong collaboration and communication skills.
  • The initiative to evolve processes through continuous improvement, to ensure the best delivery to our clients.
  • Attention to detail and the ability to engage with client requirements to ensure that the delivery is fit for purpose.
  • The humility and empathy to coach and assist fellow data analysts.
  • A good sense of humour.

What you will do:

CGT Outsourcing Services

  • Working with data from our clients’ investment management systems in order to enrich the data with tax relevant information. Mechanically we do this mainly via MS Access and MS SQL queries:
    a) identifying data patterns and trends in client data (data mining);
    b) designing SQL queries to interrogate and manipulate data;
    c)enriching the data for missing tax information;
    d)elimination of false disposals and inconsistent data from client data; and
    e)investigating of data exceptions and inconsistencies.
  • Investigating corporate actions and applying the corporate action correctly to the data.
  • Compiling and analysing reports after processing and investigating any issues identified.
  • Working with clients and client auditors on explanations and investigation of tax calculations.

CGT Software

  • Modeling and testing of scenarios (i.e., new CGT calculations) in the software.
  • Guiding software programmers when designing new software functionality, or troubleshooting computations and algorithms within the software.
  • Testing software for new developments, software customisations or software bugs (defects).
  • Maintaining of our CGT software user manual and other tax documentation.
  • Software support and training for licensed clients.
  • Software implementation and upgrades for clients.
  • Involvement in sales and marketing activities of our CGT software and services. (presentations, software demonstrations, proposals etc.)

Tax Technical (Not initially required, but advantageous and will be trained on the job)

  • Researching corporate actions of companies, both foreign and local events, in order to determine the appropriate tax implications for taxpayers holding these instruments.
  • Investigating Income Tax Act law and analyzing impact on our tax services and software.
  • Involvement in our annual Tax client seminars:
    a) interpreting changes to tax legislation annually;
    b) modeling these changes to guide the development team on how to change the software;
    c) preparation of client documentation on the tax amendments; and
    d) preparation of and/or presentation during our seminars.
  • General tax research for ad hoc purposes.

What we can offer you:

We ask a lot of our people, which is why we give so much in return. In addition to your market-related salary, medical aid, pension and group life insurance, our perks include:

  • Collaborating with your team in the office at least 2 days a week.
  • A tangible and genuine commitment to your career growth through our career management initiative.
  • With patience, loyalty and the right attitude, the opportunity to carve a unique position of value and career satisfaction for yourself.
  • Bi-annual discretionary performance bonuses after 6 months.
  • The option to participate in our employee share incentive scheme after 2 years.
  • Managers who understand your strengths and interests and leverage those.
  • A hands-on, caring management team that espouses fairness and holds employees appropriately accountable.
  • An inspirational, approachable, and engaging leadership team, committed to helping people thrive.
  • A high impact learning culture that focuses on technical excellence.

Please send your CV and a cover letter to recruitment@singular.co.za
Use the subject heading Ghost Mail CGT Outsource: Intermediate Data Analyst

Ghost Bites (Brikor | Discovery | Kore Potash | Libstar | Stefanutti Stocks | WBHO)

The Finance Ghost
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Ghost Bites (Brikor | Discovery | Kore Potash | Libstar | Stefanutti Stocks | WBHO)

Listen to the latest episode of Ghost Wrap here, brought to you by Mazars:

The Brikor offer is on the table (JSE: BIK)

The offer price is 17 cents per share

As was communicated to the market recently, Nikkel Trading planned to move through the 35% threshold and make a mandatory offer to the remaining shareholders in Brikor. Nikkel smashed through that threshold rather than moved through it, taking its stake to 64.11% and triggering the mandatory offer in the process.

The mandatory offer price is 17 cents per share, which is identical to the price paid for the latest tranche of shares.

The CEO of Brikor gave Nikkel an irrevocable undertaking not to participate with his shareholding of roughly 12.8% of shares outstanding. The proof of funding given by Nikkel to the Takeover Regulation Panel (TRP) thus excludes the amount that would be applicable to those shares.

A circular will be issued to shareholders with the opinion of the independent board and its recommendation to shareholders. This recommendation will be informed by the work of the independent expert.

Discovery: all about the adjustments (JSE: DSY)

The company really wants you to ignore the effect of interest rates

I’m a fan of simple financial reporting that doesn’t try and use a million different adjustments to tell the story that management wants to tell. With a share price that is down 15% over five years, there isn’t a great long-term story at Discovery. In fact, the share price is pretty similar to where it was in 2015!

It’s had a good time in 2023 though, up 19% this year.

The performance for the year ended June 2023 reflects growth in headline earnings of only 3% to 8%. Normalised headline earnings is 30% to 35% higher, so no prizes for guessing which metric they would like you to focus on. The major reason for the adjustment is the change in interest rates, which impacts headline earnings but apparently has no impact on the operations of the group. This is rather funny when you consider that one of the operations is a bank.

To properly understand the results, we will have to wait for them to come out on 21 September.

Kore Potash releases interim financials (JSE: KP2)

But the numbers don’t really matter at the moment

Junior mining companies have to release results just like everyone else, even though the market doesn’t care much about the numbers. At this stage in a mining company’s lifecycle, it’s all about progress being made on the project.

On that note, Kore Potash is working towards finalising terms for the EPC contract at the Kola Project. There’s no change to the position with Summit Consortium, which has committed to giving a financing proposal for Kola within six weeks of the finalisation of the EPC contract with PowerChina and SEPCO.

As you can see in this screenshot from the results, there are only expenses on the income statement with interest income on the cash reserve providing a minor offset:

Volumes drop 7% at Libstar as consumers cut back (JSE: LBR)

But revenue is 4% higher thanks to pricing and mix changes

There aren’t many winners in this inflationary environment, especially not in the consumer-facing industries like grocery retail and their suppliers. At least beach tourism will probably do well this year, as a lot of summer bodies are being made in winter thanks to people cutting back on food in their baskets.

Volumes at Libstar dropped by 7% in the six months to June, mainly driven by a drop in consumer demand, although the discontinuation of certain personal care lines is also a contributor here. Thanks to positive pricing and mix changes of 11%, revenue increased by 4%.

I must highlight an increase of just 1.4% in operating expenses, which is way below inflation.

Sadly, when manufacturers experience a drop in volumes, it generally ends quite badly for margins even when expenses have been well controlled. Gross profit margin fell by 210 basis points to 20%. Normalised operating profit took a 26.6% hiding, with margin dropping from 6.3% to 4.5%.

By the time you reach the bottom of the income statement, I’m afraid that diluted HEPS (which takes into account any stock options etc. and assumes those shares have been issued) has dropped 58.2%. Normalised HEPS is down 44.9% which is hardly any better. There is no interim dividend, but that is Libstar’s standard practice as the company only declares an annual dividend.

Net interest bearing debt to EBITDA increased from 1.5x to 2.1x as at the reporting date, although the post-period receipt of insurance proceeds for the fire at the Denny Mushrooms Shongweni facility brings this down to 1.9x.

The only real highlight in this result is cash conversion, which improved significantly as cash generated from operations jumped by 92.2% year-on-year. This is all thanks to a decrease in the amount of working capital needed by the business. A further boost to cash flow is that capital expenditure fell by 12.8%, although one wonders whether this is simply a short-term tactic to improve the debt picture with potential long-term ramifications.

This clearly isn’t a happy story, with various strategic initiatives in process to try and fix it. The HPC division has been difficult to sell, with the group still committed to disposing of this business if a buyer appears. In the meantime, they need to improve the operations and make it a lot more appealing to buyers.

Those sitting in back office jobs at Libstar should probably be worried, with management commentary like this:

“Libstar’s portfolio currently comprises five product categories, eighteen business units, twelve separate sales, marketing and operational teams and seventeen separate back-office teams. The Top Six divisions of the Group, based on economic profit, contribute more than 80% of the Group’s intrinsic value.”

With results like this and a structure like that, I can’t see how extensive restructuring won’t be part of the turnaround plan.

But here’s the saddest paragraph in all of this, which is a perfect snapshot of why our GDP growth is nothing close to what it should be:

“Current market and operating conditions, most notably the dependency of farming operations on stable electricity supply, are not conducive to the reinstatement of the Shongweni facility. As such, the Group will retain the proceeds from the insurance claim for application to value-accretive opportunities.”

Libstar’s share price was already down 43% year-to-date before this announcement came out.

Stefanutti Stocks increases the Kusile claim (JSE: SSK)

The wheels keep turning towards a big payout

Stefanutti Stocks’ provisional claim for Kusile was R1.14 billion, consisting of various cost and finance claims. An updated claim has now been submitted that comes to R1.614 billion.

This will be reviewed by experts and then referred to the Dispute Adjudication Board (DAB) for a decision. The company hopes to receive the binding decision late this year. At that stage, either party may issue a notice of dissatisfaction and and refer it to arbitration.

WBHO reports better results from continuing operations (JSE: WBO)

And thanks to reduced losses in discontinued operations, the group result is better too

In the year ended June 2023, revenue from continuing operations at WBHO increased by 38% and HEPS jumped by 31%. That’s good news. This is a construction company, so expecting a dividend is less realistic than hoping the Proteas will still win the Aussie series. In case it’s not clear: there’s no dividend for this period.

In discontinued operations, the loss was “only” R101 million vs. a whopping R1.9 billion loss in the prior year. This is because the provisions related to the mess in Australia needed to be increased in rand terms as the currency depreciated.

This means that for the total group, headline earnings per share swung wildly from a loss of R36.93 per share to profit of R15.14 per share. That’s a whole lot more like it.

The full announcement gives astonishing detail around the underlying projects. I won’t touch on it here because it would honestly take you all morning to read. Something I will highlight is that the renewable energy enthusiasts among you will be interested to learn that the Civil Engineering segment saw revenue increased by 162% thanks to big wins in solar and wind farm projects.

Thanks to the improvement in earnings, WBHO’s share price is up 44% in the past 12 months.

Little Bites:

  • Director dealings:
    • A director of Lighthouse Properties (JSE: LTE) – and NOT Des de Beer for once – bought shares worth R1.9 million.
    • A non-executive director of Richemont (JSE: CFR) has acquired shares worth roughly R247k.
  • Novus (JSE: NVS) is about to bank the R125 million related to the disposal of the Novus Print Letting Enterprise to Micasa. The registration of the transfer of the properties has taken place on 11 September.
  • The reorganisation of AngloGold Ashanti’s (JSE: ANG) listing structure will be finalised during September. This will see the primary listing of the company effectively move to the New York Stock Exchange.
  • Investec Property Fund (JSE: IPF) will change its name to Burstone Group Limited (JSE: BTN) will effect from 20th September.

Ghost Wrap #45 (Bell Equipment | Transaction Capital | Capitec | Caxton & CTP | City Lodge | Sun International)

The Finance Ghost
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Ghost Wrap #45 (Bell Equipment | Transaction Capital | Capitec | Caxton & CTP | City Lodge | Sun International)

The Ghost Wrap podcast is proudly brought to you by Mazars, a leading international audit, tax and advisory firm with a national footprint within South Africa. Visit the Mazars website for more information.

In this episode of Ghost Wrap, I looked at some of the more interesting stories in a busy few days of news.

  • Bell Equipment has released really strong results, but watch the cash.
  • Transaction Capital’s nightmares continue, with news of the departure of David Hurwitz and underlying earnings in a tough spot, sending the share price back below R6.
  • Capitec found some love in the market despite modest HEPS growth.
  • Caxton & CTP is a tale of two segments right now, with heavily discounted look-through exposure to Mpact making it interesting.
  • City Lodge’s occupancies are higher, but the market is looking for pricing power and that is lacking.
  • Sun International’s resorts and hotels segment boosted the group in the latest result, with gaming revenue also moving higher.

Ghost Bites (Bell Equipment | City Lodge | Metrofile | Sun International | Transaction Capital | Transpaco)

The Finance Ghost
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Ghost Bites (Bell Equipment | City Lodge | Metrofile | Sun International | Transaction Capital | Transpaco)

Listen to the latest episode of Ghost Wrap here, brought to you by Mazars:

Bell Equipment: let’s talk about cash, baby (JSE: BEL)

Specifically, where did it go?

The Bell Equipment share price has had quite a year, posting a year-to-date increase of 23.7% according to Google Finance. The share price has shot straight up this month, which leaves it vulnerable to a correction and consolidation.

After the release of trading statements caused all the buzz, the release of detailed results didn’t add to the party. In face, the share price was slightly down on the day.

The metrics certainly look good, with revenue for the six months to June up by 42% and HEPS jumping 63%. Cash is important too, with that metric telling a very different story.

Despite profit from operating activities of R535.9 million, the cash outflow for the period was nearly R398 million. Last year, profit was R308 million and the cash outflow was R177 million, so this mismatch isn’t anything new.

The culprit is right at the top of the cash flow statement, with almost all the cash generated in this period being sucked into working capital. At least it’s better than last year:

The inventory balance has jumped from R4.75 billion to R5.88 billion. This is based on a planned increase in production volumes and shipping delays from South Africa. If you exclude inventory, Bell’s balance sheet isn’t exactly cash flush. It’s not in bad shape, but investors will keep a close eye on working capital.

There is no interim dividend once again, which makes sense in the context of the balance sheet.

City Lodge occupancies are ahead of 2019 levels (JSE: CLH)

But room rates haven’t recovered yet, so pricing power remains a concern

Group occupancy at City Lodge is up by a whopping 18 percentage points year-on-year, coming in at 56% for the year ended June 2023 vs. 38% in the prior year. Importantly, this is now slightly ahead of 55% in the FY19 result before the pandemic slaughtered the industry.

Although average room rates are up 12% vs. last year, they remain below pre-Covid levels. Pricing power to fill the hotels is in doubt here. What isn’t in doubt is the success of the food and beverage strategy, now contributing a significant 17% of total revenue (up from 15% last year). With load shedding as an ongoing reality for all of us, giving people a place to work and eat really isn’t a bad approach in this market, even if they don’t stay the night. The gross profit margin on food and beverages improved from 55% to 58% year-on-year.

As great as that is, it will be important to the investment case that room rates make a full recovery as well. The inflationary pressures in the cost base are substantial, with property costs up by 19%. The fixed cost base isn’t static.

Still, EBITDAR (the “R” isn’t a typo – this is industry standard in hospitality) increased by 83% and EBITDAR margin increased from 27.5% to 32.4%.

Thanks to a vastly improved balance sheet, a dividend of 8 cents per share has been declared. This is despite a significant capital investment programme in the new financial year with a clear focus on renewable energy solutions. They even need to put in place water solutions at some of the facilities, as supply can be erratic.

The good news for the new financial year is that occupancy has run at over 60% since the end of the financial year. The warm weather has only just begun, so hopefully a strong few months are ahead.

The share price hasn’t moved much based on these earnings. I think the market is keeping an eye on return on assets and the pricing power concerns I’ve highlighted.

Metrofile is swimming upstream (JSE: MFL)

If you love picking up coins in front of a steamroller, this one is for you

Metrofile isn’t exactly the most exciting company around. Image processing and document storage isn’t high on the list of “things I want to do when I grow up” for most people. The latest numbers won’t do anything to change that.

Excluding the acquisition of IronTree Internet Services, revenue has increased by 13%. Including that acquisition, revenue is up by 16%. That sounds pretty good, but wait until the bottom of the income statement. Before we move away from revenue, it’s important to note that gross box volumes intake was 6% and destructions and withdrawals were 9%, so closing box volumes fell by 3%.

Operating profit only increased by 6%, with margin mix as a concern because image processing is lower margin than other sources of revenue. There are obviously also inflationary pressures on costs. The company has invested in its go-to-market sales team, so more money is being put behind marketing to try and turn the tide on the drop in volumes.

Net debt increased by 11% and net finance costs were 18% higher because of the increase in prevailing interest rates. This is why HEPS could only limp 5% higher. The dividend for the year of 18 cents was consistent with the prior year, so the payout ratio dipped.

On a share price of R3, that’s a dividend yield of 6%. This means that the market is expecting the company to deliver meaningful growth in HEPS. Although this period wasn’t exactly a thrill ride, the company has highlighted important contracts in South Africa and the UAE that have been won.

The share price performance over 5 years is slightly in the red, so investors have had to be content with dividends over that period. The share price is down 14% this year.

Sun International confirms that we are still jolling (JSE: SUI)

South Africans know where the party is

Even load shedding couldn’t stop the Sun International party in the six months to June 2023, with income up 11.7% and adjusted EBITDA up by 5.6% thanks to diesel costs and a stronger contribution from resorts and hotels, which is a lower margin business (22% in this period) than gaming. Although margins are under pressure, this is a positive change in profits and that’s good going in this environment. Group adjusted EBITDA margin fell from 28.7% to 27.2%. Without load shedding, it would’ve fallen to 28.2% instead.

Adjusted headline earnings per share tells a better story, up 10.1%. When you consider the backdrop against which this result has been achieved, it looks pretty decent. The market certainly thought so, with the share price trading around 6% higher by lunchtime.

The major driver wasn’t gaming revenue, which contributes 78% of group income. It grew 6.6%, with casino income up 3.2% and Sun Slots slightly down year-on-year because of load shedding. SunBet generated record income, up 138.4% year-on-year. If you are willing to place much reliance on management’s calculation of adjusted EBITDA, then SunBet is up from R14 million to R90 million as income has moved significantly above break-even level. The company recognises that SunBet operates in a highly competitive industry and the hope is to differentiate through SunBet being part of the wider Sun International offering. They are aiming for 10% market share in online betting by 2026.

The real winner was resorts and hotels, up 26.9%. People are clearly hungry for experiences in a post-pandemic world and the weak rand really helps. Not only does it make us more appealing as a global destination, but it also means that locals who used to be able to afford an overseas holiday can now only afford to take a Sho’t Left. Average occupancy increased from 57% to 66.8%.

South African debt sits at R5.9 billion which is in line with December 2022 levels. Debt to adjusted EBITDA is at 1.8 times. Net interest jumped by 40.3% as the prevailing interest rates have increased substantially. With debt to adjusted EBITDA below the target of 2.0 times, a dividend based on 75% of adjusted HEPS has been declared. This is an interim dividend of 148 cents.

The outlook for the remainder of this year is bullish, which would also have been a contributor to the positive share price response.

Hurwitz didn’t survive the Transaction Capital mess (JSE: TCP)

Jonathan Jawno is back in the hot seat to try and fix this nightmare

I must say, I was skeptical about David Hurwitz managing to survive the SA Taxi debacle with his group CEO role still intact. We now have the answer, as he will step down effectively from 31 December 2023 and will remain available in 2024 to ensure a smooth handover. It sounds like 2024 will be gardening leave for him, so life could be worse.

The Transaction Capital garden isn’t looking so good and the share price performance on Tuesday morning is likely to be ugly. Aside from the catastrophe at SA Taxi, WeBuyCars expects earnings to be approximately 20% lower year-on-year, with a notable decision not to open any new branches in the second half of the 2023 financial year. Nutun’s earnings are growing more slowly than previously communicated. At a time when the group desperately needed the other divisions to do well or even outperform, it just hasn’t played out that way.

This brings us neatly to SA Taxi, with that segment renamed Mobalyz in an effort to get us to forget about how bad things are. There have been significant restructuring activities, moving towards a more variable cost model to help the group weather the storm. This results in savings of R500 million per year. Credit is being tightened and operations are being simplified, with the auto refurbishment and repair facilities potentially being sold. The business really has fallen apart, with short-term tactics to improve cash flow that definitely reduce the strategic moat over the long-term.

Aside from Jonathan Jawno who is spearheading the SA Taxi restructure, Chris Seabrooke is now chairing a Mobalyz Debt Sustainability Committee as Sabvest has a significant stake in Transaction Capital. It really is a case of all hands on deck.

Get ready for the share price to Mobalyz itself, firmly in the wrong direction again.

Transpaco agrees to a big repurchase at a discount (JSE: TPC)

This actually shows you how hard it is to sell a large stake in a local small- or mid-cap

Manufacturers Investment Company (Pty) Ltd is a private company that holds a meaningful stake in Transpaco. As liquidity in this stock is low, it’s just about impossible to sell a stake this size without bombing the share price of the company is the process. Welcome to life in local small- and mid-cap companies.

Transpaco is wise to the opportunity to provide exit liquidity to this shareholder in a form of a specific repurchase. Of course, this is at a discount to the current share price, so it’s a win for the remaining shareholders.

The stake represents 3.67% of shares outstanding and the cash consideration for the repurchase is R30.6 million. The price is R27.83, which is a 10.10% discount to the 30-day VWAP calculated based on Friday 1 September. The current share price is R33.76 but this is where a VWAP is so important, as illiquid stocks can move by large percentages on thin volumes. A VWAP takes that into account (as this is a volume-weighted calculation).

A circular will be sent to Transpaco shareholders to approve the proposed buyback.

Little Bites:

  • Director dealings:
    • Des de Beer has bought another R17 million worth of shares in Lighthouse Properties (JSE: LTE).
    • A director of AngloGold Ashanti (JSE: ANG) purchased American Depository Receipts worth $33k.
    • The Blue Label Telecoms (JSE: BLU) story continues to divide the market. A director of a subsidiary selling shares worth R97k doesn’t do any favours for sentiment.
  • We don’t know what transaction Clientele Limited (JSE: CLI) is contemplating, but we know that negotiations are still alive and well because a further cautionary announcement has been issued.
  • There’s still no sign of financials at Salungano (JSE: SLG), as the audit process cannot be completed until the refinancing process has been concluded. One of the conditions of the refinancing process is the appointment of a Chief Restructuring Officer, which tells you how things are going. No timing has been given in the announcement for the release of financial results. The shares remain suspended from trading.
  • Imtiaz Patel is stepping down from the board of MultiChoice (JSE: MCG), where he currently serves as Chair. Elias Masilela will take on that role, having already been on the board as an independent director for a while. Importantly, Patel will continue consulting to the group until 2028, with specific involvement in ShowMax and SuperSport. Although institutional knowledge is important in any organisation and Patel has plenty of that, this does also raise some questions around succession planning and the depth of talent in the group.
  • Advanced Health (JSE: AVL) announced that all conditions for the clean-out dividend of 20 cents per share and scheme of arrangement at 80 cents per share have been met.
  • Tsogo Sun (JSE: TSG) repurchased shares to the value of nearly R1.8 million in the odd-lot offer.

Ghost Bites (Capitec | Caxton | Curro | Hammerson)

The Finance Ghost
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Ghost Bites (Capitec | Caxton | Curro | Hammerson)

Listen to the latest episode of Ghost Wrap here, brought to you by Mazars:

Capitec finds bidders with a trading statement (JSE: CPI)

It’s a voluntary update, so don’t expect any “at least 20%” news here

There’s nothing stopping companies from giving the market more updates than the minimum required under JSE rules. Even though Capitec is a long way off the threshold that triggers a trading statement (a 20% move in earnings), the company released a voluntary update based on earnings for the six months to August.

Group HEPS will be between 8% and 10% higher year-on-year, which the market seemed to love as the share price closed nearly 10% higher.

It hasn’t exactly been a happy year for the share price, with the gain on Friday helping to regain some of the recent lost ground:

Due to the funeral and credit insurance businesses within Capitec, the group hasn’t escaped the introduction of IFRS 17 Insurance Contracts. This is the new standard that has caused major swings in earnings at the likes of Sanlam. There’s an entire report on the impact of this standard on Capitec (you can find it here) with this table showing how significant the difference is on restated full-year numbers:

Aside from the link to the IFRS 17 report and the guided HEPS growth range, the announcement is pretty light on financial details. There’s some commentary about consumers under pressure and credit granting criteria being tightened in response. Both transaction fee income and funeral insurance performed well according to the company.

Full details are expected to be released on 28 September.

Caxton is trading at roughly half of its NAV (JSE: CAT)

And the annual growth in the NAV doesn’t look too bad either

Caxton & CTP Publishers and Printers (or Caxton for our collective sanity) published record results for the year ended June 2023. HEPS grew by 20.2%, although I’m not sure that’s the ideal metric when assessing the valuation here.

The core business comes through on the income statement, with revenue up by 16.6% thanks to pricing and volume increases in the packaging business. The split is 49% publishing and printing, 51% packaging and stationery. The second half of the year wasn’t quite as exciting as the first half as demand softened and margins came under pressure and competition intensified. The packaging business is definitely the major growth driver at the moment.

Caxton is sitting on expensive stock and this will impact margins as it works through the system, although there’s already been a write-down on some stock items in this period.

Staff costs grew by 6.9% and other operating expenses grew 7.7%. That’s well below revenue growth.

Notably, operating profit of R810.8 million includes a net R84.6 million related to the insurance claim related to the KZN floods. Another important once-off is the R78.9 million profit on disposal of Cognition Holdings.

Cash is always king, with cash from operating activities of R523.2 million, which is a 21.7% increase over the prior year. In terms of capital allocation, the group made acquisitions of R144.6 million, of which the Amcor bag-in-box bladder business was the largest at R102 million. A dividend of R197.1 million was paid during the year and share repurchases were R25 million.

The outlook for the upcoming year isn’t as rosy as one might hope, as Caxton’s media publishing and printing business is highly exposed to local retailers. Certain parts of the packaging business are similarly exposed, although they also have exposure to more defensive sectors like alcohol, quick-service restaurants and cigarettes.

The reason why HEPS probably isn’t the best valuation metric here is because of assets of R9.2 billion, a whopping R1.4 billion is attributable to investments. Within that, R1.37 billion is in listed shares, which is mainly the investment in Mpact. The Mpact share price was down at R25.5 at the end of June, now up to over R30. The right place to see this benefit is the NAV per share rather than in HEPS.

Here’s an interesting media-related snippet that I thought was worth including here:

As another interesting strategic tidbit, the acquisition of Maskew Miller Learning by Novus Holdings (a competitor to Caxton) means that those textbook volumes have been lost. This was Caxton’s biggest textbook customer and the lost of volumes will mainly be felt in the new financial year.

Curro adds sustainability-linked funding metrics (JSE: COH)

What makes this especially interesting is that the metrics have been added to existing debt

Although banks and lenders will try hard to turn everything into a marketing opportunity about how altruistic they are, the reality is that most ESG-related decisions are a direct result of financial and regulatory pressures. In an effort to improve ESG scores, lenders look for opportunities to lend against sustainability-linked metrics that encourage the borrower to “do the right thing” in exchange for a better funding rate.

I always find it interesting when “the right thing” should be a core part of the business anyway. Curro is a perfect example, with one of the metrics being targets linked to bachelor’s degree pass rates. You would think that this is a key metric for Curro regardless, but if they can get lenders to reward them for it, then why not? Other metrics include employee diversity and water usage.

The thing I found most interesting about this news is that the metrics are an overlay to existing debt facilities with Standard Bank, FirstRand, Sanlam Specialised Finance, Investec and Absa. Standard Bank acted as the Sustainability Coordinator and PSG Capital as the Transaction Advisor, getting all these lenders across the line.

The debt value is R3.3 billion, so shaving some of the funding costs off this principal amount will be helpful. The announcement doesn’t indicate exactly what the targets are or what the potential saving might be.

Hammerson partially extended its debt maturities (JSE: HMN)

At this point in the cycle, that comes at a price

Hammerson recently announced a £100 million bond tap issuance, which means new debt raised under an existing bond programme. These are 7.25% coupon bonds maturing in 2028. The coupon drives the pricing of the yield, which is the actual cost of the debt to Hammerson. They were priced at a yield of 9.1%, which means they were issued at a discount to face value because a 7.25% return isn’t sufficient in this environment.

In a distinct but related transaction, Hammerson announced a tender offer for its £350 million 3.5% coupon bonds maturing in 2025 and its £300 million 6.0% coupon bonds maturing in 2026. If you look at the various transactions here, Hammerson effectively raised £100 million due in 2028 and used it to repay some of the short-dated debt through the holders of that debt “tendering” their debt back to Hammerson.

Hammerson accepted tenders for £11.7 million of the 2025 bonds and £88.4 million of the 2026 bonds at repurchase yields of 7.7% and 8.1% respectively. Remember, they issued debt at 9.1% to achieve this. The cost of shifting £100 million worth of maturities from 2025 and 2026 to 2028 is an annualised net interest cost of £3 million per year.

This debt cycle isn’t friendly to property companies, especially in the UK where rate hikes have been severe.

Little Bites:

  • Director dealings:
    • The spouse of a director of a major subsidiary of Northam Platinum (JSE: NPH) has executed a big sale of sales, coming in at R19.4 million.
  • In case you’re wondering whether it pays to be CEO of a listed company, the answer is that yes it does. This isn’t quite the standard director dealing as it relates directly to a vested share scheme, but it’s still worth highlighting that Truworths (JSE: TRU) CEO Michael Mark has sold shares worth R19.4 million. It’s interesting to note that the shares were awarded in 2009 and only vested in 2023.
  • The disposal of the Vyeboom Fruit Farm by Crookes Brothers Limited (JSE: CKS) was approved by shareholders at the general meeting with a 92.63% approval rate.

Unlock the Stock: Curro Holdings

The Finance Ghost
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Unlock the Stock: Curro Holdings

Unlock the Stock is a platform designed to let retail investors experience life as a sell-side analyst. Corporate management teams give a presentation and then we open the floor to an interactive Q&A session, facilitated by the hosts.

This year, Unlock the Stock is delivered to you in proud association with A2X, a stock exchange playing an integral part in the progression of the South African marketplace. To find out more, visit the A2X website.

We are also very grateful to the South African team from Lumi Global, who look after the webinar technology for us.

In the 24th edition of Unlock the Stock, we welcomed Curro Holdings for the first time to talk to investors about the recent performance and the way forward.

As usual, I co-hosted the event with Mark Tobin of Coffee Microcaps and the team from Keyter Rech Investor Solutions. Watch the recording here:

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