Aspen Pharmacare has concluded an agreement with Eli Lilly Export, a subsidiary of US pharmaceutical company Eli Lilly and Company. In terms of the agreement, Aspen will distribute and promote Eli Lilly’s products in South Africa and in certain other sub-Saharan African countries for an initial term of 10 years, automatically renewable for two further periods of five years. Aspen will pay US$41,5 million for the distribution rights.
Subdued demand for metal can products manufactured at Nampak’s Nigerian operation resulted in its closure from 31 July 2023. Nampak has since entered into an agreement to dispose of the Nigeria Metals property and equipment to Associated British Foods’ subsidiary Twinings Ovaltine Nigeria for NGN7,5 billion (c.R180 million).
In a move to internalise its asset management function, Delta Property Fund will acquire Delta Property Asset Management from the DPAM Employee Benefit Trust. The purchase consideration of R1000 will be settled by the issue of 7,692 shares to the Trust.
Sebata has acquired Valley View Industrial Park in New Germany, KZN from Reunert for R32 million. The acquisition is a Category 2 transaction and as such does not need shareholder approval.
Unlisted Companies
UEM Sunrise, a Malaysian property developer will divest from the South African market with the disposal of an 80.4% stake in Roc-Union, a provider of real estate services, to Azishe Properties for R118,4 million. The disposal is in line with the company’s turnaround strategic plan to realign its operations geographically and redirect resources to businesses and areas which offer greater potential.
South African on-line subscription platform Rentoza has raised US$6 million in funding from Alitheia IDF and Vumela Enterprise Development Fund. Rentoza dematerialises ownership of technology devices and appliances for consumers and is South Africa’s first pure play subscription model for digital goods and appliances, providing an affordable, accessible and flexible e-commerce ecosystem. The investment will be used to scale the technology enabled platform and business regionally.
InsureTech platform LeaseSurance, has raised R3 million in a seed funding round led by Fedgroup Private Capital. The platform offers lease insurance to SA’s residential operators and asset owners, reducing the administrative burden by replacing cash deposits with affordable monthly fees and so lowering bad debts. The capital injection will be used to enhance its insurance offering by further developing its technology solutions for the industry.
The Nampak Board and management are in the process of implementing various turn-around initiatives to restructure the group from a conglomerate to a business focused on specific packaging operations. To optimise the capital structure of the group, management intends to raise R1 billion via a rights issue and R2,6 billion via an asset disposal plan. In terms of the rights offer, which is to be partly underwritten to a maximum of R450 million, shareholders will receive the rights to subscribe for rights offer shares on the basis of 2.20902 rights for every one Nampak ordinary share at a 23.49% discounted price of R175.00 per rights offer share. The results of the offer will be announced on 26 September 2023.
Northam Platinum has disposed of 30,065,866 Impala Platinum shares which the company received as part payment for the sale of its stake in Royal Bafokeng Platinum. The shares were sold on the open market, raising R3,15 billion.
As part of its capital optimisation strategy, Investec Ltd acquired a further 3,146 Investec Plc shares on the open market at an average price of R105.75 per share.
Trustco has announced it is to undertake a share repurchase programme. The maximum number of shares that can be repurchased in terms of the programme is 197,447,716 shares.
As part of Investec Ltd’s share repurchase programme, the company reported this week that it had repurchased 28,461 shares at an average price per share of R104.88. Since 21 November 2022, the company has repurchased 13,6 million shares at a cost of R1,45 billion.
Prosus and Naspers continued with their open-ended share repurchase programmes. During the period 21 – 25 August 2023, a further 2,150,482 Prosus shares were repurchased for an aggregate €135,99 million and a further 322,464 Naspers shares for a total consideration of R1,03 billion.
Glencore intends to complete its programme to repurchase the company’s ordinary shares on the open market for an aggregate value of $1,2 billion by February 2024. This week the company repurchased a further 5,970,000 shares for a total consideration of £25,98 million.
South32 continued with its repurchase programme, repurchasing a further 931,147 shares this week at an aggregate cost of A$3,19 million.
Suspended in July 2020 for failure to submit its provisional report, Pembury Lifestyle Group will be delisted from the JSE on 5 September 2023 with shareholders remaining invested in an unlisted company.
The Cape Town Stock Exchange has welcomed two new listings – Thibault REIT and GAIA Renewables REIT. Thibault, a property holding and investment company with a 10.02% stake in Safari and 14,46% stake in Texton listed on the CTSE on 25 August 2023 with a market capitalisation of R103 million. GAIA Renewables which listed on 31 August 2023 is a ring-fenced REIT providing investors with access to commercial and industrial renewable energy investments in South Africa.
DRDGold will join other mining companies on A2X with a secondary listing effective 5 September 2023. This latest listing brings the number of instruments listed on A2X to 179 with a combined market capitalisation of over R10,6 trillion.
Three companies issued profit warnings this week: Murray & Roberts, Afristrat and Putprop.
Nigeria’s Dangote Sugar Refinery (DSR) has announced the terms of the proposed merger with NASCON Allied Industries and Dangote Rice. The internal restructuring will be executed through a Scheme of Merger. The offer will be 11 ordinary shares in DSR for every 12 NASCON shares and 14 DSR shares for every 1 Dangote Rice share.
Namibian investment holding company, Stimulus has announced that its subsidiary, Desert Trade Investments, has disposed of its 79.95% stake in Namibia Media and an 80% stake in Newsprint Namibia to its co-shareholder, Emeraldsand Properties, the shareholders of which are various members of the Namibia Media and Newsprint Namibia management teams. Financial terms were not disclosed.
Morocco’s fintech, Cash Plus, has acquired a strategic stake in Moroccan B2B marketplace, SLE3TI, through its cash Plus VC investment vehicle, for an undisclosed sum.
Record Resources has signed a non-binding agreement with African Minerals Exploration & Development Fund III Sicar (AMED Fund II) and Red Sea Gold and Nurtureex to acquire preferred shares in a gold exploration property in Djibouti. AMED, Red Sea and Nurtueex collectively control 69% of Thani Stratex Djibouti. Pursuant to the execution of a definitive agreement, Record Resources will acquire half of the AMED shares in return for investing US$7,5 million.
SDX Energy has entered into a non-binding Heads of Terms for the sale of all of its Egyptian assets to a large multinational operator. Additional information will follow in due course.
Tunisian startup, SeekMake has raised US$539,000 from European PE firm Lafayette Group. The company connects clients with manufacturers across 40 countries and will use the funding to accelerate its global expansion plans, predominantly into Germany and France.
HEDG, an Egyptian fintech that provides pension plans for the private sector, has raised a six-figure pre-seed funding round from local Egyptian and Sudi Arabian investors.
FMO, the Dutch entrepreneurial development bank and British International Investment have each committed US$20m to Ethiopian private sector bank, Dashen Bank. The loan will provide much needed capital for the expansion of the country’s agricultural sector.
Osino Resources Corp, the Canadian owner of the Twin Hills Gold Project, has taken a secondary listing on the Development Capital Board of the Nambian Stock Exchange, effective 29 August 2023. The company’s primary listing is on the TSX Venture Exchange.
In the cut-throat realm of corporate power plays, where alliances crumble and ambition knows no bounds, one manoeuvre stands out as the epitome of audacity and strategic cunning – the hostile takeover.
At its core, a hostile takeover is an act of calculated aggressive opportunism, whereby the acquiring firm seeks to seize control of the target entity against the wishes of the target’s incumbent board of directors, the majority of whom are at risk of being replaced.
With weakening share prices, predatory acquirers seek to obtain attractive targets at opportunistically lower prices, particularly at a time when a sufficient majority of shareholders may be looking to exit their investment in the company, perhaps also disgruntled with the incumbent executive management.
If the hostile acquirer pitches their bid to the shareholders at the right price, they can gain control of the target entity. Unlike an amicable acquisition, where the boards of both the target and acquiring firm negotiate and reach a mutual agreement on pricing, which can be pitched to shareholders through a cooperative scheme of arrangement, a hostile takeover bid is made without the cooperation of the present board of directors.
The poison pill defence
When faced with a hostile takeover attempt, the target company and its board of directors may attempt several defensive measures to try to fend off the unwanted acquirer. One of the most common methods, frequently employed on a global scale, is the shareholders rights plan, aptly coined the “poison pill” defence. This strategy involves making the target firm less attractive and more financially onerous to acquire through a series of rights and privileges that are afforded to pre-existing shareholders in the event of a hostile takeover attempt.
When triggered by a hostile bid, the poison pill provisions entitle current shareholders to subscribe for the target’s shares at a heavily discounted subscription price, thereby increasing the number of issued shares and diluting the share value, making it more difficult for the hostile firm to obtain a controlling stake. This “flip-in” share purchase arrangement was implemented by Twitter in April of 2022 in an attempt to thwart Elon Musk’s initial takeover attempts.
Restrictions on the target company’s board
However, poison pills are not without controversy, as critics argue that they can entrench management and impede shareholders’ rights. In a South African context, section 126 of the Companies Act 71 of 2008 (the Companies Act) applies, and outlines the restrictions placed on a target company’s board of directors in relation to its ability to frustrate takeover actions. In terms of this section, and in the event of a bona fide offer, the board of the target company is prohibited from engaging in any conduct or taking any action that could result in such a bona fide offer being frustrated or which could deny the target company’s shareholders a genuine opportunity to deliberate the offer on its merits.
S126 further prevents the issuing of any authorised but unissued securities; the granting of any options in respect of any unissued securities; and also prohibits any sale or acquisition of any assets of a material nature – other than in the ordinary course of business – along with any distribution that is abnormal with regard to its timing and/or amount. The impact of s126 is evident – poison pill defences, as envisaged by the Companies Act, are not permissible within the framework of South African company law.
So why, despite the prohibition of one of the most effective tools to counteract hostile takeovers, do these types of acquisitions seldom succeed in South Africa?
The role of Competition law
One of the principal reasons may be contained in the stipulations of the Competition Act 89 of 1998, as amended (the Competition Act), as well as the Competition Commission’s Rules of Conduct (the Competition Rules). In the event of a proposed acquisition, whereby a change of control would be effected, the provisions of the Competition Act and the Competition Rules dealing with merger control are triggered.
Depending on the scale of the merger, that is, if it meets the specified thresholds for either an intermediate or large merger, as determined with reference to factors such as annual turnover and asset value, the Competition Commission (the Commission) must be notified. In the event of such, notification, the merger parties (being both the acquiring and target firms) are expected to cooperate and submit a joint notification entailing, inter alia, their financial statements and board reports, as well as comprehensive business plans.
Furthermore, it is customary for the merger parties to submit a collective report to the Commission, outlining the competitive landscape of the markets within which they operate. This report also evaluates the potential impact of the merger on competition within those markets.
Alternative procedures
The cooperative nature of these engagements means that it is incredibly difficult for a hostile acquirer to secure the active participation of a target firm that is being subjected to a hostile bid. Accordingly, rule 28 of the Competition Rules anticipates this and makes provision for an alternative procedure, allowing the acquiring firm to apply to the Commission for permission to file a separate merger notification. However, there is no prescribed period within which the Commission must furnish the hopeful acquirer with its decision to permit this alternative procedure. While this can delay a merger filing, even with the Commission’s approval of the acquiring firm’s separate notification, rule 28 still affords ample opportunity for the unwilling target entity to prolong proceedings within the confines of the Competition Act.
In the event of a rule 28 notification, the target firm will be directed to prepare the relevant filing documentation pertinent to their company. As a hostile takeover generally entails resistance, the target may not be so acquiescent to this instruction; in which case, if more than 10 business days have elapsed, the acquiring firm must again approach the Commission for permission to file the aforementioned documentation on behalf of the target.
Further scope for delay
The significance of these protracted and delayed filing proceedings is that s13A of the Competition Act mandates that no merger that requires notification shall be implemented until the requisite approval has been obtained by the Commission and, on referral in the case of large mergers, the Competition Tribunal. Further, the rule 30 review period, under which the Commission deliberates on whether or not to approve a merger, can only commence once the filing process has been completed. Accordingly, delays stemming from the target’s lack of cooperation in the filing process can severely obstruct the attempted takeover.
Even if the acquiring firm is able to navigate a successful filing without the participation of the target firm and place the merger before the Commission for consideration, s13B(3) of the Competition Act allows for any party to voluntarily file any document, affidavit, statement or other relevant information with the Commission in respect of the merger in question.
If the merger is hostile, the unwilling target can use this mechanism to make submissions to the Commission, including petitioning them to prohibit the merger on the grounds that it would be anti-competitive and harmful to competition in the markets within which the merger parties operate, if such grounds exist. This could give rise to a litany of new legal complications, all of which could hinder and further delay the hostile takeover bid and its chances of success.
Difficulties with implementation
Evidently, the South African corporate landscape presents a potentially challenging terrain for the implementation of hostile takeovers, even in the absence of obstacles such as poison pill remedies and other director-driven interference. The strictures of the Competition Act, as well as the co-operative complexion of South Africa’s merger control regime, provide a resistant target firm with a plethora of opportunities to prolong merger proceedings to the point where they may become untenable for the acquiring firm. It is, therefore, unsurprising that hostile takeovers tend to fail in South Africa.
Nicholas De Decker is a Candidate Attorney. Supervised by Jeff Buckland, Director, Head of Corporate & Chairman of the Management Board | Lawtons Africa.
This article first appeared in DealMakers, SA’s quarterly M&A publication.
In the past few months, the United States’ (US) Treasury Office for Foreign Assets Control (OFAC) and the Department of Commerce’s Bureau of Industry and Security (BIS) have announced significant violations of US sanctions and export controls while imposing further sanctions on Russian and Belarussian entities. The interconnectedness of global markets means that the sanctions imposed on Russian and Belarussian entities have ripple effects on African and linked entities, particularly those involved in trade and business partnerships with the sanctioned entities. The impact of such sanctions on African entities is often indirect but existential, as they can create economic and trade disruptions, limit access to financial services, and impact reputation.
This article unpacks the OFAC listing and delisting process (OFAC listing) and discusses some of its likely impacts for African businesses.
Entities are listed by OFAC as part of a process which develops from identifying entities which may be engaging in sanctionable activities, investigating those entities and their activities, and coordinating a review with other US government agencies before publishing an OFAC listing. Collectively, the OFAC-listed individuals and entities are referred to as Specially Designated Nationals or SDNs. Being listed by OFAC imposes economic and trade sanctions on the listed entity. Upon listing, an entity is likely to experience several immediate impacts which disrupt trade and limit access to financial services.
The listed entity is likely to first be notified of its designation by its banks, which would typically inform the entity that its bank accounts will be closed. Further notices may follow from other sources, including that the entity’s US assets will be frozen, and that existing commercial relationships may be severed (especially with US companies and citizens).
After being OFAC-listed, an entity will need to apply for delisting and take other immediate actions to prevent further harm. The process of being removed from OFAC listing is complex, time-consuming and arduous.
A formal application seeking OFAC delisting must be submitted to the US Department of Treasury. The adjudication of an application is not an objective judicial process, and no third-party, independent oversight exists for OFAC delisting applications. Delisting applications also have a higher legal standard of evidence than OFAC listings, so it is easier to be listed by OFAC than it is to be removed from the OFAC list with the same evidence. Nevertheless, the US government is required to operate broadly under sets of rules and cannot act arbitrarily. Should an entity wish to engage with OFAC, OFAC is required to respond, provide information and engage with the listed entity. Further, OFAC is held to the reasons that it used to make the listing determination in the first place.
The OFAC listing of individuals poses a major challenge as people cannot change their family or their relations, but commercial businesses are different. If a commercial business becomes OFAC listed, it is important that it severs ties with any OFAC-listed entities to limit its exposure. This can include disinvestments by designated entities, removal of designated entities from commercial structures, disengaging in existing commercial ties, and changing business approaches.
US entities are generally prohibited from any commercial relationship with OFAC-listed entities. Since listed entities cannot transact with US persons, US-exposed entities may experience the most significant financial impact. Non-US persons should also be cautious of transacting with listed entities as they may be subjected to secondary sanctions. If a sanctioned entity has a controlling interest in any other entities, each of these entities is also automatically designated. Accordingly, it is important for businesses to be aware of these designations and their potential bearing on commercial activities, particularly if they have significant connections to US entities or operate and trade in US dollars.
Most financial institutions with US relationships will prevent transactions with listed entities, and financial institutions based in the European Union and United Kingdom may also adopt OFAC decisions. Financial institutions may initially be inclined to summarily terminate their relationships with designated entities, but they have a duty to act fairly and reasonably in all their dealings with clients. While the banking sector understands the scope of OFAC’s jurisdiction and ensures broader compliance with OFAC and the Organisation for Economic Cooperation and Development (OECD) guidelines, these may contradict the contractual agreements between the banks and their now OFAC-listed clients. Should African Banks service any designated entities, the banks are placed in a challenging position as they face conflicting demands in servicing or terminating their relationships with sanctioned entities.
African bank accounts may also be needed for sanctioned intermediaries to conduct their business and pay their employees and suppliers. Should a bank proceed to close its accounts, sanctioned intermediaries will have no option but to seek urgent relief from the courts and pursue a claim for damages and costs against the appropriate bank.
The only way for designated entities to reassure the banking sector is to approach the US Treasury for removal of the designation. Hence, it is important for sanctioned intermediaries to seek proper legal recourse and explore options for delisting to avoid financial, reputational and commercial damages. Given the unique nature of the application and issues to delist from the OFAC list, it is best attended to by experienced attorneys who specialise in this area.
Brandon Irsigler is a Partner, Noushaad Omarjee a Senior Associate and Davin Olen a Legal Professional Assistant | Dentons South Africa
This article first appeared in DealMakers AFRICA, the continent’s quarterly M&A publication.
Congratulations to Mazars on their appointment as the auditors of Fairvest Limited!
Anglo American notes soft demand at De Beers (JSE: AGL)
Again, I can’t help but think that lab-grown diamonds are hurting them
I’ve been sharing my views publicly about lab-grown diamonds this year and how I think they are a very real threat to the De Beers business model. There’s been some robust debate around this point and a number of smart views on both sides of the argument. It is obviously relevant to Anglo American as holding company.
Although the numbers never lie, the problem is that soft demand is being blamed on the prevailing economic conditions without bluntly highlighting lab-grown diamonds. Of course, when times are tough, the cheaper diamond becomes an even more attractive alternative.
In Cycle 7 of 2023, De Beers managed sales of $370 million. That’s miles off cycle 7 last year ($638 million) or cycle 6 of 2023 ($411 million).
This trajectory doesn’t look very shiny to me.
Aspen with the ol’ bait and switch (JSE: APN)
Two announcements on the same day, with very different consequences
You really have to feel sorry for whoever bought Aspen for R195 in morning trade, as the price ended the day at R171. This is what happens when good news is released in the morning, following by tough results in the afternoon.
I’ll start with the good news, which is a distribution agreement with Lilly for products in South Africa and some Sub-Saharan African countries for 10 years, with an automatic renewal for two further periods of 5 years. Aspen will pay $41.5 million for these distribution rights. The Lilly portfolio includes medicines in neuroscience, oncology, diabetes and immunology. There are key pipeline products, as one would expect from a major pharmaceutical house. Lilly’s products generated revenue of R440 million in South Africa in 2022. Remember that Aspen will earn a gross margin on the products (i.e. the R440 million wouldn’t have been the profit to Aspen), so don’t assume that they just locked this in for a bargain price. Still, it’s good news strategically.
I really don’t understand why the Lilly news was announced separately, as it was included in the results announcement alongside other strategic news anyway. Speaking of those results, revenue for the year ended June increased by 5% but that was nowhere near enough, with HEPS down by 4% and normalised HEPS down by 8%. Despite the drop in HEPS, the dividend was 5% higher.
A major negative in this result was the loss of COVID vaccine manufacturing contribution, which negatively impacted gross margin. Other significant factors included forex swings and higher interest costs.
Aspen called this a solid set of results. The share price response sent a very different message.
The outlook is positive overall, with management focused on filling existing manufacturing capacity. They even go so far as referring to the second half of 2024 as a “significant inflection point” that should “form the foundation for sustainable strong future earnings growth” – let’s hope for the sake of investors that this is the case.
Despite the drop in HEPS and even in the share price on the day of release, Aspen remains 25% up for the calendar year.
Bidcorp’s numbers look delicious (JSE: BID)
Dividend growth that almost perfectly tracks HEPS growth is great to see
Revenue at Bidcorp has increased by 33.4% in the year ended June, driving trading profit growth of 38.4% and a tasty jump in cash generated by operations of 66%. This is a particularly strong result in terms of cash conversion, adding to what is already a great financial story this year.
HEPS increased by 35.4% and the dividend by 34.3%, so the payout ratio is similar. It’s a big tick in the box to see the cash follow the earnings.
To give you an idea of how quickly this group is growing, there were no fewer than nine bolt-on acquisitions in the year. It’s like a United Nations meeting, with deals everywhere from the UK to Estonia, Spain and even the Czech Republic. Bidcorp is an incredible market consolidator in the food service industry. In many cases, the company doesn’t acquire 100% of the target, leaving behind a piece of equity for the local management team. That’s smart.
This global approach is clearly visible in the note dealing with regional capital expenditure:
Every segment saw a significant jump in trading profit this year, with Europe (up 53.6%) and Australasia (up 51.9%) as the big year-on-year movers. Here’s your chart of the day:
Be careful extrapolating this kind of growth in those regions. There’s definitely a base effect here related to the back-end of the pandemic. Still, these are really strong numbers.
Blue Label Telecoms keeps inspiring 4th year accounting papers (JSE: BLU)
I don’t think you’ll find a more complicated set of numbers anywhere on the local market
It’s bad enough that Blue Label Telecoms has financials that would scare even the most sadistic of 4th year Financial Accounting lecturers. The situation is even worse when the company releases results on such a ridiculously busy day of news.
For the sake of my sanity and yours, I’m not going into details here. I would be surprised if there are more than 10 people in the entire country who fully understand the numbers from start to finish.
Core HEPS has dropped from 121.01 cents to 45.55 cents. Within core HEPS, there are “core businesses” and apparently they did well. There are also “extraneous contributions” to Cell C that are included in Core HEPS, but somehow not in the core businesses. Sigh.
If you exclude the Cell C contributions, core HEPS grew by 9%. The Blue Label management team has a long history of destroying shareholder value in acquisitive adventures, so I wouldn’t just exclude this number as an inconvenience.
The share price has lost 33% this year, probably because nobody actually understands what is going on. Here’s what the long-term chart looks like, in case you’re worried that you are missing out on management’s capital allocation prowess:
Cashbuild gives full details of the pain (JSE: CSB)
The final dividend has halved
In the current South African environment, you probably wouldn’t wish the Cashbuild business model on your worst enemy. It really is tough out there, with South African consumers nervous to invest in their homes and getting gently obliterated by interest rates when debit orders go off every month. From recent company news, they managed to scrape together enough coins for a trip to Spur and that’s about it.
Revenue down by 4% for the year ended June 2023 doesn’t seem that bad in this environment, with gross profit down by 8% as gross profit margin deteriorated from 26.3% to 25.4%. Sales volumes dropped sharply though, as selling price inflation was 5.4%. This means that if volumes were flat, revenue would’ve been up by roughly that amount. Instead, it was down by 4%.
Speaking of inflation, the pressure on costs is clearly visible with operating expenses up by 5% if you exclude the looting in the prior year and the P&L Hardware goodwill impairment this year. Without those adjustments, operating expenses jumped 20% in this period, absolutely hammering operating profit by 73%.
The best measure is HEPS, which fell by 37% year-on-year. The total dividend for the year is down by 42%. It’s worth highlighting that the final dividend fell by 51%, so things have gotten worse as the year went on.
I don’t even have good news for you on the balance sheet, with stock levels up by 12% despite revenue being lower. In an environment where capital is expensive, this really isn’t good news either.
In the six weeks subsequent to year-end, revenue is down 1% year-on-year. The pain continues.
The share price closed just over 2% lower on a day that was slightly green on the ALSI, so the market wasn’t shocked by this but wasn’t happy either.
Caxton and CTP flags a nice jump in HEPS (JSE: CAT)
A trading statement is the precursor to earnings due to be released by 11 September
The Caxton and CTP trading statement for the year ended June 2023 was light on details but heavy on HEPS growth, so that shouldn’t upset too many shareholders. HEPS is expected to be between 16.6% and 24.8% higher, coming in at between 183 cents and 196 cents.
For reference, the current share price is R10.00 and has been sideways since March, with a year-to-date positive move of over 8%. In other words, that jump all happened in the first couple of months of the year.
Thanks to the gold price, flat production at Harmony was good enough (JSE: HAR)
A 60% jump in HEPSis why the share price is up more than 80% over 12 months
If you manage to time a commodity cycle correctly, it can be very rewarding. If you think that’s easy to do, you are in for a nasty surprise. Predicting gold price moves is harder than guessing what the next political party in South Africa will be.
For the year ended June 2023, Harmony Gold increased revenue by 16% despite a 1% drop in production, which tells you how helpful rand depreciation was. Operating free cash flow more than doubled and the company swung beautifully into a net profit position.
HEPS was up by 60% to R8.00 which puts Harmony on almost exactly a 10x Price/Earnings multiple.
Looking ahead, the guidance for all-in sustaining cost is less than R975,000/kg. Considering it was R889,766/kg in this period, that’s hopefully very conservative guidance. If not, I’m not sure shareholders will be feeling quite so harmonious by this time next year unless the gold price does something exciting.
KAP gets a klap – a big one! (JSE: KAP)
Bye-bye, dividend
There are a number of industrial players on the local market that are doing really well at the moment. KAP isn’t one of them.
The record result last year is a distant memory, with Safripol and Unitrans as the major pressure points. Group revenue increased by 6%, but EBITDA fell by 11% as margins went firmly in the wrong direction. There’s no saving the result from there, with HEPS dropping 43% thanks to the poor result in EBITDA and a 59% increase in net finance costs.
Cash flow from operations dropped by 5%, so this was actually a period of working capital improvement as this is lower than the drop in EBITDA. We have to try look for the rainbows here.
Safripol is the large, ugly elephant in the room. Although revenue increased 2% to R10.3 billion, operating profit plummeted by 45% to R764 million. This is a cyclical business based on polymer prices and the prior year was a record. Still, this result was below expectations because of softer demand. Load shedding impacted local customers who saw a drop in production volumes, with a direct impact on Safripol.
Unitrans is the other ugly part of this story, with revenue up 3% to R10 billion and operating profit down by a nasty 33% to R385 million. The food business was hit by a contract cancellation and the agriculture operations were impacted by rainfall and flooding, with an insurance claim having been registered but no further details given on this. Mining, passenger and petrochemical operations were OK in this environment. There has been significant restructuring activity at Unitrans that will hopefully improve things soon.
PG Bison grew revenue by 10% to R5.35 billion and operating profit by 12% to R933 million. The business won market share after increasing its annual raw board capacity. Demand was impacted by particularly high levels of load shedding in the third quarter.
Restonic increased revenue by just 1% to R1.63 billion, but managed to achieve operating profit up by 17% to R81 million after restructuring its operations. Sales volumes fell 7% in South Africa, returning to pre-pandemic levels. I guess the old beds will do when the home loan repayments have become so expensive for most people.
At Feltex, revenue increased by 27% to R2.3 billion and operating profit was around 6x higher at R211 million. Welcome to the effect of operating leverage in an industrials company, particularly when moving from barely break-even to decent levels. Local automotive assembly volumes increased by 32%, as we recovered from the floods in KZN and the global chip shortage.
Finally, Optix (previously DriveRisk) somehow more than doubled revenue from R242 million to R523 million and yet reported an operating loss of R7 million vs. profit of R22 million. The optics aren’t good at Optix.
The group is focused on reducing debt, as tough conditions are expected to largely continue in the next financial year. Along with the capital projects on the table, this is why the dividend is now a thing of the past.
Lots of revenue at Motus, but what happened to HEPS? (JSE: MTH)
This result requires a lot of digging
When you are skimming a financial result on SENS, one of the first things to look for is any kind of mismatch between top-line growth and profits. Motus is a perfect example. For the year ended June, revenue increased by 16% and EBITDA by 19%, yet HEPS was only 1% higher at R20.46. The dividend per share is R7.10, which is identical to the previous year.
What happened between EBITDA and HEPS?
Before we get to that, let’s look at revenue. It was up by 52% in Aftermarket Parts (an acquisition is part of that), 14% in Retail and Rental, 9% in Mobility Solutions and 3% in Import and Distribution. The mix is also worth touching on: 13% new vehicle sales, 31% parts sales, 9% pre-owned vehicles and 13% rendering of services.
When you see growth in revenue like this in an asset-heavy business, you need to wonder about what the impact on the balance sheet is. Another clue to what happened to profitability is that the announcement simply talks about net finance costs increasing, without giving the comparable number. That’s like a red flag to a bull, or even a ghost. Sure enough, that’s what happened to profits:
It costs money to fund growth in a business like this, with an outflow of R5.8 billion in net working capital. Net debt to equity jumped from 36% to 77%. In this environment of higher interest rates, this makes the banks very happy, especially when just 7% of funding is at fixed interest rates. Net debt to EBITDA has increased from 0.8x to 1.8x, which is still well below the debt covenant of 3x. With all this additional capital in the system, return on invested capital fell from 17.8% to 14.1%.
In terms of interesting trends, it’s not surprising to read that South Africans are moving from luxury vehicles into more affordable alternatives. Tracking NAAMSA unit sales is one thing, but of course the economic profit pool is based on units multiplied by selling prices. Although unit sales have been ahead of expectations, I question how well the more luxury-focused dealerships out there are doing. Despite this, Motus was happy to acquire three Mercedes Benz passenger dealerships and a commercial dealership in Gauteng in November 2022. Motus achieved 19.8% retail market share in South Africa for the 12 months to June 2023.
The South African operations contributed 61% to revenue and 73% to EBITDA for the year. The rest is contributed by the UK, Australia and South East Asia.
In the UK, economic pressures aren’t really filtering through into the new vehicle market. To give an idea of the relative size, there were over 2.1 million new vehicles sold in the UK in the 12 months to June 2023 vs. 541,000 in South Africa. It’s a much bigger market, with Motus focusing primarily on the van and commercial segments as well as the aftermarket parts business, evidenced by the acquisition of Motor Parts Direct in October 2022. And in Australia, another market in which Motus operates, new vehicle sales were 1.1 million over the same period.
Murray & Roberts is a horror story (JSE: MUR)
I’m not surprised that they released after the market closed
The fact that Murray & Roberts has had a shocking year isn’t a surprise. This doesn’t mean that the share price won’t dive even further when the market opens on Thursday, as these numbers came out after the market close on a ridiculously busy day.
The Clough and RUC Cementation businesses in Australia have been restated as discontinued operations, so this makes the year-on-year result look a lot better than it actually is. I’ll just ignore the comparatives, as the real story is the diluted headline loss per share of -71 cents. This is why the share price has been slaughtered in the past year, now barely keeping head above water at 65 cents.
The net asset value has collapsed from R13 last year to R4 this year.
Obviously, there is no dividend for shareholders.
This is genuinely a game of survival now. Murray & Roberts keeps talking about having a future. That isn’t the same thing as a bright future. Many tears have been shed over the ATON offer of R17 a share back in 2019 that the management team decided wasn’t good enough. The pandemic will always be blamed for the destruction in value since then, but that doesn’t make investors any less angry.
Nampak sells off property and equipment in Nigeria (JSE: NPK)
It doesn’t make a huge dent in group debt, but every bit helps
Nampak has agreed to sell the Nigeria Metals property and various associated equipment to Twinings Ovaltine Nigeria. The effective date of disposal is expected to be in the first half of this financial year. The Nigerian Metals operations had been shut down from 31 July 2023 anyway, so this is actually a pretty good turnaround on getting rid of the assets.
At current exchange rates, this raises around R180 million in cash for Nampak. It will be used to reduce debt.
It certainly helps, but there’s a very long way to go with asset disposals here.
STADIO’s growth is being driven right from the top (JSE: SDO)
An education business needs growth in students, which STADIO is delivering
With growth in Semester 1 student numbers of 9% and an inflationary environment as well, STADIO reported revenue growth of 16% in the six months to June. It’s interesting to note that as at the end of August, student numbers were up 11% year-on-year, so second semester enrolments must be going well.
There was pressure on the loss allowance (related to fee revenue), so EBITDA only increased by 10%. Strategic investment in technology also impacted EBITDA in this period. Core HEPS tells a better story, up by 20% as the group has earned significantly higher investment income on its cash balance.
As was the case last year, no interim dividend has been declared. STADIO only pays a final dividend.
Notably, contact learning student numbers grew 3% after shrinking 4% in the prior year. Nature is healing. STADIO is still predominantly an online business, with a substantial 86% of students being distance learning candidates. This is the core investment thesis, with cash from operating activities of R180.7 million in this period and capex of just R22.2 million on fixed assets.
Keeping Woolworths Food cold is very expensive (JSE: WHL)
Thankfully, the food is organic and so is the growth across the business
When looking at the 52 weeks ended 25 June for Woolworths, you need to know that David Jones has been accounted for as a discontinued operation, bringing to an end one of the most awful deals in South African corporate history. The new management team will be thrilled to close off that legacy nightmare, leaving them to focus on the continuing business.
That business is doing well, with turnover from continuing operations up by 10.6% and HEPS up by 14.8%. The dividend per share has increased by 36.4%, a reflection of growth in the core business and perhaps more certainty with David Jones out of the system.
The greatest irony of all is that including David Jones in this result makes them look better for once, thanks to lockdowns in Australia in the prior year. Total group HEPS increased by 29% vs. 14.8% from continuing operations.
Looking deeper into the remaining business, the Fashion, Beauty and Home (FBH) segment grew turnover by 8.3% on a comparable basis and 8.9% overall. Price movement was 11.6%, which suggests that volumes fell by 3.3%. Online sales only grew by 3.8% and contributed 4.3% of South African sales. Notably, sales growth in the second half was only 6.7%, which is quite a bit slower than the first half. Gross margin improved by 90 basis points to 48.5% and expense growth was 6.8%, so the net effect on adjusted operating profit was a very juicy increase of 21.3%. Management’s strategy in this space is working really well.
Woolworths Food, which I’m convinced has been a major mitigating factor for the emigration trend, grew turnover by 8.5% overall and 6.3% on a comparable basis. Unlike in FBH, the second half was better than the first half. Price movement of 8.3% tells us that volumes fell by 2%. Inflation was 9.9%, so it also tells us that Woolworths Food is being forced to be more competitive on price. If you’re wondering why, it probably has something to do with those turquoise scooters all over our roads. Speaking of online, Woolworths Food grew online by 28.5%, contributing 3.8% of South African sales. Gross margin increased 40 basis points to 24.4% and expenses were up 12.4% because of the impact of load shedding. After all, the ambient temperature of the average Woolworths Food is -493 degrees Celsius and that requires a lot of diesel. With operating margins down, the Food business could only grow adjusted operating profit by 2.9%.
Woolworths Financial Services saw the book increase 14.5%, with the impairment rate up substantially from 4.7% to 7.3%. This is to be expected in this environment.
In Australia and New Zealand, the business of relevance is Country Road Group. Sales grew 12.0% overall and 12.4% in comparable stores, which tells you that net space actually reduced during the year. This hasn’t stopped consumers from returning to stores, with online sales contributing 27.1% to sales vs. 31.6% in the prior year. Importantly, sales growth in the second half slowed severely to 0.6%, so the cadence isn’t promising here. A focus on gross margin management saw that margin increase by 310 basis points to 62.6%. Expenses jumped by 15.9% because of lockdowns in the base. Adjusted operating profit was 25.6% higher.
Based on the slowdown in the second half of the year and the sobering outlook statements, I’m not surprised the share price dropped 1.5% on the day.
Little Bites:
Director dealings:
In a shock to precisely nobody, Des de Beer has bought another R764k worth of shares in Lighthouse Properties (JSE: LTE)
The family trust of a director of Mantengu Mining (JSE: MTU) has sold shares worth R117.5k.
The company secretary of Exemplar REITail (JSE: EXP) has bought shares worth R100k in an off-market trade.
There are more sales by directors of Argent Industrial (JSE: ART), though they are very small this time with a total value of under R4k.
Capitec (JSE: CPI) founder Michiel Le Roux has debt in an associate company called Kalander that is secured with Capitec shares. A collar structure is regularly used in these scenarios. Based on maximum exposure of R449 million, the put price is R1,498.69 and the call price is R2,700.00. The current price is R1,615.97. Kalander intends to cash settle the hedge to the extent necessary, so no sales of shares by Kalander is envisaged.
Delta Property Fund (JSE: DLT) has very little remaining value, so I guess this is as good a time as any to internalise the management company for a price of just R1,000.
Sebata Holdings (JSE: SEB) is acquiring a building from Reunert Limited (JSE: RLO) for R32 million. This will help Sebata put all its investee companies under one roof, saving on various leases. The property is in New Germany, KZN.
If you’re a shareholder in Mahube Infrastructure (JSE: MHB), be aware that there’s a revised AGM notice that includes additional agenda items related to the appointment of a director and chairperson of the company.
Structured products have come a long way. From a specialised, exotic investment tool, they are now mainstream, and financial advisers are now more comfortable about investing in them on behalf of clients.
A perfect example is the Investec USD S&P 500 Autocall, where investors can earn a potential return of up to 8.4% p.a. if the index ends flat or positive on one of the call dates in year 3, 4 or 5. Provided the index does not end below 70% of the initial index level, there is full capital protection in USD. The minimum investment amountis R100,000 and there is a maximum 5-year term. This is a limited offer that closes on 16 October 2023. T’s and C’s apply and full details can be found on the Investec website at this link.
To explain structured products in general and the Investec USD S&P 500 Autocall as the latest offering, Brian McMillan joined The Finance Ghost on this episode of Ghost Stories.
Topics covered included:
The other side of options: using options as hedging instruments rather than tools of speculation;
A history of structured products in the South African market;
How to invest in Investec structured products through an independent financial advisor or broker;
An overview of the key terms of the latest structured product, including the downside protection calculation and the upside potential;
Liquidity in this structure; and
The versatility of the product in terms of types of investors and portfolio strategies.
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, we recap a busy couple of days:
Super Group is living up to its name and with growth in profit in every segment, there’s much for shareholders to feel good about here.
Grindrod is in a different part of the logistics industry, yet the growth numbers are remarkably similar to Super Group.
In the education sector, we’ve seen strong updates from ADvTECH and STADIO, with both shares prices ahead of rival Curro this year.
CA Sales Holdings is getting on with delivering its strategy to a high standard, with the FMCG business doing well in this inflationary environment.
Transpaco is a great example of what happens when small improvements are made in operating margin.
Master Drilling is as close to the shovel in the gold rush as you’ll find, with ongoing HEPS growth at a time when mining houses are seeing HEPS fall sharply.
Master Drilling put in a solid year in ZAR (JSE: MDI)
In a great show of masochism, the company also likes to report in dollars
For the six months to June 2023, Master Drilling continued to benefit from an improved global mining environment after the pandemic. Although commodity prices have come off pretty sharply this year, mines are still making money and need to develop their assets on an ongoing basis. That’s good news for Master Drilling.
If you’re wondering which commodities are relevant, there’s a really nice spread:
The company focuses on its numbers in dollars, which tends to blunt the experience. In the world’s hardest currency, revenue increased 12.1% and profit was up 8%. HEPS increased by just 5.7%. If you put that HEPS number in ZAR instead, you get growth of a much more exciting 25.0%.
Investors will want to keep an eye on cash from operating activities, as this decreased by 5.7% in dollars. A decrease in cash vs. an increase in profits is an eyebrow-raiser regardless of which currency you look at. There has been substantial investment in inventory this period of $1.8m vs. a release of $0.2m in the comparative period.
The share price is down roughly 13% this year. Be careful with this one, as liquidity is low and the bid-offer spread can really bite you. Welcome to trading locally listed mid-cap names.
Get ready for Nampak’s rights offer (JSE: NPK)
The circular should be released on 4th September
Nampak needs to raise R1bn in equity through a partially underwritten renounceable rights offer. A simple way of saying this is that the company is going with hat in hand to shareholders to save it. The balance sheet has really deteriorated over the course of the pandemic, with management interventions to steady the ship not being enough. Sometimes, a company just has no choice but to raise fresh capital.
Commitments to the value of R500m have been received from existing shareholders. Importantly and in addition to this (unless the wording in the announcement is extremely poor and this amount is included in the R500m), there is R450m worth of underwriting from Coronation (R300m), A2 Investment Partners (R100m) and Numus Capital (R50m), all of whom will receive an underwriting fee of 2.33% of the underwritten amounts. That’s a little bit high as a fee but to be quite frank, Nampak has no choice.
In addition to the R1bn rights offer, the group needs to raise R2.6bn from asset disposals.
Full details, including the price for the rights offer, will be announced on Thursday 31st August. The circular is expected to go out on 4th September.
The market dished out more punishment for Sibanye (JSE: SSW)
Despite a decent day for commodities, the share price fell 6.7%
Now trading at R30 after trading as high as R73 during the pandemic, Sibanye-Stillwater investors have been on the receiving end of a real hammering. In case you think it can’t get worse, this thing was trading below R8 five years ago.
For the six months to June, lower platinum group metal (PGM) prices dominated the story. Group adjusted EBITDA fell by 37% and HEPS tanked by 51%.
In the US, because of production issues due to unfortunate events, all-in sustaining costs in this period of 1,717 US$/2Eoz were a problem compared to the average basket price of 1,390 US$/2Eoz. The US business still generated adjusted EBITDA of $53m, but this was way down on $261m in the comparable period. The US PGM recycling business also went the wrong way, with adjusted EBITDA of $20m vs. $39m in the comparable period.
This all pales in comparison to the South African PGM business performance, which is far larger and hence more important than the US business. The average basket price is different vs. the US because the US business is measured based on 2Eoz and the local business is 4Eoz. Rand depreciation offered a partial shield, with the local price dropping from R43,379/4Eoz to R34,006/4Eoz. All-in sustaining cost also moved higher but cost control was decent. Despite this, the net result was a squeeze on margins and adjusted EBITDA of R11.8bn vs. R21.2bn in the comparable period.
In the gold operations, the comparable period was a catastrophe because of labour issues. This is why gold production increased from 5,962kgs to 12,962kgs. The average gold price also moved firmly in the right direction, so adjusted EBITDA swung wildly from -R3.1bn to R2.4bn. This helped offset some of the pain in PGMs.
On top of these pressures, the investment in metals like nickel and zinc is not doing the income statement any favours at this stage. The nickel operations lost R0.6bn and the zinc business in Australia lost R0.5bn. Sibanye really has had the worst luck recently, with the nickel operations in France impacted by social unrest in the country. If you want to guess where the next disaster or social issue will be, perhaps just draw a map of Sibanye’s operations.
They can’t even catch a break in the US, where Tiehm’s buckwheat has been classified as an endangered species at the Rhyolite Ridge lithium project, necessitating an alternative mine plan and updated feasibility study.
One of the silver linings is the balance sheet, with a net debt to adjusted EBITDA ratio of just 0.01x. There is nearly as much cash as there is debt. The other positive spin is that with the shaft now repaired at the US PGM operations, the second half of the year should be better.
A performance befitting Super Group’s name (JSE: SPG)
Although there’s margin pressure, HEPS has grown beautifully
For the year ended June 2023, Super Group put in a solid performance with revenue up 30.6% and EBITDA up 20.8%. Although this immediately tells you that margins went the wrong way, HEPS growth of 23.3% is a lovely outcome for the company, with a 31.5% increase in net finance costs not having spoiled the party.
Operating cash flow increased by 18.9%, so cash conversion is decent as well.
A big portion of the group’s business sits outside of South Africa. 54% of revenue and 56% of operating profit came from beyond our borders, with the UK as the largest international revenue business and Australia as the biggest contributor to operating profit.
The segmental story is best told with a chart. It’s not every day that operating profit increases in every single segment:
The next set of numbers will include the acquisition of Amco, a transport company in the UK. Super Group raised R1.81bn in debt during this financial year and R810m was for this acquisition, which was concluded after year-end.
With net debt of R4.38bn and EBITDA of R8.49bn, the net debt to EBITDA ratio is more than manageable.
A final dividend of 80 cents a share has been declared. The share price traded 1.7% lower at time of writing at R34.78, with the ALSI down by 0.59%. This doesn’t take anything away from the year-to-date share price performance of roughly 33%.
Thungela goes in search of a life beyond Transnet (JSE: TGA)
The acquisition of the Ensham mine in Australia has been concluded
Earlier this year, Thungela told the market that it would be investing in Australia. The biggest appeal of this transaction must surely be the prospect of having coal operations in a country with a working rail network.
The mine is expected to achieve export saleable production at an FOB cost of between $110 and $120 per tonne. Based on the announcement, the correct price to work off is the Newcastle export coal price. From what I could see on the Trading Economics website (and please correct me if I’m looking at the wrong price), the current level is around $158 a tonne. But don’t get too comfortable, because in June it was trading at a level similar to Ensham’s production cost.
It’s been a rough ride for Thungela shareholders this year, with the share price having approximately halved based on a drop in coal prices.
Transpaco signs off on a great result (JSE: TPC)
This is a wonderful example of growth despite difficult conditions
For the year ended June, Transpaco’s revenue increased by 10.8% and operating profit was up 13.3%. That tells a good story around operating margins (10 basis points higher at 9.7%). It gets better as you move through the result, with HEPS up by 19.4%. As the final icing on this cake, the dividend is 20.9% higher, so the cash has followed the profits.
The packaging industry can be a dangerous place because of the fairly low operating margins. The best businesses are rewarded though, winning market share and increasing those margins off a low base, which does terrific things for shareholders. In this result, both the Plastics division and Paper and Board division did well, with revenue up 7.4% and 15.0% respectively.
And on top of all of this, the balance sheet is in great shape too.
I can’t be bothered to include Nampak on this chart because we all know how that played out. Instead, here’s Transpaco vs. Mpact over 5 years:
Little Bites:
Director dealings:
Des de Beer has bought R1.02m worth of shares, but this time in Resilient (JSE: RES). Before you wonder whether he’s neglecting Lighthouse (JSE: LTE), he also executed purchases there of R1.46m.
An associate of a prescribed officer of Dis-Chem (JSE: DCP) has sold shares worth R799k.
The CEO of AECI (JSE: AFE) has bought shares worth R416k.
A director of Adcorp (JSE: ADR) has bought shares worth over R134k.
NEPI Rockcastle (JSE: NRP) has released a circular dealing with the scrip dividend alternative. The cash dividend is 25.67 euro cents per share and the scrip alternative is valued at 27.10 euro cents, a 5.6% premium to the cash dividend to entice shareholders to take the scrip instead of the cash. Furthermore, the issue price of the shares for the scrip alternative will be at a 3% discount to the five-day VWAP that will be calculated on 5th September. Property funds incentivise the scrip dividend as a way to retain cash. You can almost think of it as a small rights offer.
The timetable for the disposal by Rebosis (JSE: REA | JSE: REB) of the Standard Bank-funded properties has been extended once more. The finalisation of sale agreements has been pushed out from 28 August to 4 September.
There is yet another updated trading statement from Woolworths (JSE: WHL), with the benefit of the completion accounts process for the David Jones sale having been concluded. This only affects Earnings Per Share (EPS) rather than Headline Earnings Per Share (HEPS), which is why I’ve only mentioned it in Little Bites. For the total group, EPS is up by between 35% and 45% for the 52 weeks ended 25 June and HEPS is up by 25% to 30%. Adjusted HEPS is up by between 30% and 40%.
RCL Foods’ (JSE: RCL) disposal of Vector Logistics has become unconditional. To refresh your memory, the buyer is A.P. Møller Capital – Emerging Markets Infrastructure Fund II K/S. Private equity buyers don’t always have names that roll off the tongue!
In case you are in the unfortunate position of being stuck with shares in W G Wearne (JSE: WEA), you’ll probably want to know that the company is in discussions with buyers for the Muldersdrift property and mining right. The sale of this property would enable the company to pay VAT and employees tax going all the way back to 2018. Yes, that’s how bad it is.
ADvTECH: a masterclass in operating leverage (JSE: ADH)
This story is going from strength to strength
For the six months ended June 2023, ADvTECH put in an excellent performance that saw revenue up by 16% and operating profit up by 23%. Most pleasingly, operating profit growth was ahead of revenue growth in each of the four divisions. HEPS was up by a juicy 24% and the interim dividend increased by 30% to 30 cents a share.
Looking deeper, Schools South Africa grew student numbers by 6% and revenue by 13%, so price increases are helping greatly. Operating margin increased from 19% to 20.1%.
Schools Rest of Africa did even better, with student numbers up by 10%, revenue by 26% and operating profit by a fantastic 73% as scale benefits started to come through. Operating margin jumped from 18.1% to 24.7%.
In the Tertiary business, student numbers only increased by 4%. Thanks to pricing power, revenue was up 13% regardless and operating margin improved to 25.0%.
The Resourcing division certainly can’t boast these kinds of margins, with operating margin of just 5.9%. The good news is that revenue increased by 26% and operating profit was 44% higher, so it’s heading in the right direction.
It’s all looking very good, so I decided to make a chart to do this performance justice:
There was a pretty awkward situation at the end of December 2022 when a systems migration led to a much higher trade receivables balance than would otherwise by the case. There’s a long way still to go in collecting the receivables, with R281 million of the R670 million tertiary balance collected. The company hopes to achieve a normalised debtors balance by the end of the year.
STADIO is leading the pack at the moment, but any of the education plays have been solid performers this year (although you needed a strong stomach):
CA Sales Holdings delighted the market (JSE: CAA)
The share price closed 9.7% after the release of results
This group is on a charge. Revenue is up by 22.5% for the six months to June and for all the right reasons, with volume increases alongside benefits of inflation, acquisitions and expansion into new regions. This is a proper growth company that is doing all the right things for investors.
Even more impressive than the revenue performance is the operating profit jump of 75.5%. You need to read very carefully now, as HEPS was up by 21.5%. When you see such a big difference between operating profit and HEPS growth, you need to dig.
In this case, the reason is that operating profit includes a “gain on bargain purchase” (an accounting concept) linked to an acquisition in Namibia at a really great price that was below the fair value of the net assets acquired. This isn’t related to revenue, which is why the operating profit growth looks odd next to revenue.
To show you how to find this kind of information, here’s the relevant line on the income statement that you can see is unusual:
CA Sales Holdings doesn’t pay an interim dividend, so no dividend has been declared for this period. If this performance carries on, the full-year dividend should be juicy!
Cognition inches forward (JSE: CGN)
The disposal of Private Property defined the latest financial year
Cognition Holdings has released a trading statement for the year ended June. HEPS has increased by more than 6x from 0.46 cents to between 2.68 and 2.78 cents per share. But with a share price of 92 cents, that earnings jump seems a little irrelevant.
Of far more relevance was the disposal of a majority stake in Private Property South Africa, which is why EPS is between 28.10 and 32.53 cents per share.
Italtile is suffering in this environment (JSE: ITE)
Volumes are down and HEPS has dropped 13%
Italtile is very much a casualty of broader South African pressures at the moment. Consumer confidence is low and the willingness to invest in property is even lower, with interest rates as a root cause of great stress on household budgets. When the priority list includes things like food and school fees, I’m afraid that new tiles for the bathroom are impossible to justify.
Italtile is generally regarded as a well-run business. With system-wide turnover up just 1% for the year ended June despite selling price inflation of 6.7%, even this business couldn’t afford a significant drop in volumes. And of course, lower volumes can only mean a drop in gross profit because of the manufacturing businesses in the group, taking gross margin down from 45.8% to 43.2%.
When the top of the income statement looks like that, the bottom half definitely won’t look like a beautiful new kitchen. HEPS fell by 13% and so did the total dividend, so at least the group managed to maintain its payout ratio.
The recent share price activity in rival Cashbuild is quite extraordinary, leading to this year-to-date chart of the two rivals:
Murray & Roberts “is a group with a certain future” (JSE: MUR)
I don’t think the market believes a word of it anymore
The Murray & Roberts share price tanked by another 12%, now trading at 66 cents. This is the same company that German group ATON wanted to buy for R15 per share back in 2018. At the time, the Murray & Roberts management team called it “opportunistic” and “poor value for shareholders” according to an article I found on Reuters. That offer was subsequently increased to R17 per share and was rejected again by the board in 2019.
You can’t make this stuff up.
This is perhaps why the market didn’t seem to care about the prospects section in the latest trading statement, which promised that “Murray & Roberts is a group with a certain future” – but not necessarily a bright one.
Of course, there was a destructive pandemic between 2018 and now. Nobody is denying that. Still, nobody I talk to in the market is particularly bullish on this story. With a headline loss per share from continuing operations of between -76 and -68 cents, it’s not hard to see why. If you include the full group and its various disasters, the headline loss per share is between -477 cents and -471 cents.
I can’t think of a better chart for SA Inc than Murray & Roberts. If you listen carefully, you can almost hear the vuvuzelas on this chart:
Little Bites
Director dealings:
Value Capital Partners has board representation at Altron (JSE: AEL) and has bought shares worth R37.5m.
The credit executive of Capitec (JSE: CPI) continues to sell shares in the company, this time with a disposal of over R4.9m.
The spouse of the CEO of Calgro M3 (JSE: CGR) bought shares worth nearly R50k.
In what can only be described as disruption on a small scale, Disruption Capital (an associate of a director of Mantengu Mining JSE: MTU) has bought shares worth just under R2k. Separately, a director’s family trust sold shares worth R31.6k.
Bringing an end to a very painful example of value-destructive M&A, Northam Platinum (JSE: NPH) has sold the rest of the shares that it had received in Impala Platinum (JSE: IMP) for the stake in Royal Bafokeng Platinum, which is being delisted. The company raised around R3.1bn from selling all the shares, with the latest disposal being worth R251m.
Orion Minerals (JSE: ORN) has undertaken a detailed geological review and has increased the Mineral Resource for the Flat Mines Area. This has been incorporated in the Bankable Feasibility Study for the Okiep Copper Project. The study is being handed to the independent technical expert appointed by the debt advisor on behalf of the IDC and other interested debt financiers.
Advanced Health (JSE: AVL) shareholders voted unanimously in favour of the proposed clean-out dividend of 20 cents per share, payable ahead of the delisting of the company.
Hudaco’s (JSE: HDC) acquisition of Brigit (the fire business) has fulfilled all suspensive conditions and will become effective from 1 September 2023.
Conduit Capital (JSE: CND) really needs to get the disposal of CRIH and CLL across the line. The fulfilment date for suspensive conditions was first extended from 1st July to 1st August, then to 1st September. The latest extension is to 30th September.
Textainer (JSE: TXT) has confirmed the exchange rate for its dividend. A gross dividend of R5.64 per share will be paid on 15 September.
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