Wednesday, November 20, 2024
Subscribe
Home Blog Page 75

Ghost Bites (ADvTECH | CA Sales Holdings | Cognition | Italtile | Murray & Roberts)

The Finance Ghost
-
2
Ghost Bites (ADvTECH | CA Sales Holdings | Cognition | Italtile | Murray & Roberts)

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.

If you want to understand more about how CA Sales Holdings generates revenue, you can refer back to the Unlock the Stock recording from April this year with the management team.

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.

Ghost Global: the business of nostalgia

Dominique Olivier
-
0
Ghost Global: the business of nostalgia

If aliens had landed on planet earth on the weekend of the 21st of July 2023, odds are they would have come away with the idea that our society venerates Barbie as a deity. What other reason would we have to dress ourselves in her signature style, hoard merchandise emblazoned with her name and image, and queue for ages outside movie theatres for the chance to see her face on the big screen?

There are no records of an alien visitation that weekend – but there are other records to talk about. 

By now there’s no denying that the Barbie movie has been a hit at the box office, smashing 15 box office records after the film’s first three weekends. In the film’s third weekend, Barbie became the 6th movie post-Covid to pass the billion-dollar mark at the worldwide box office. It took Barbie only 19 days to achieve this feat, becoming the 9th fastest film in history to make a billion dollars. Barbie also earned the biggest opening weekend ever for a film based on a toy. 

Good for Margot. Good for the studios.

Few things are as effective at luring audiences into movie theatres as a touch of nostalgia. Make no mistake: this Barbie movie wasn’t made with kids in mind. Or rather, it was – it’s just that those kids have grown up and have the power to swipe their own bank cards. 

Being an adult is hard, and if there’s one thing that helps take the edge off, it’s a two-hour technicolour trip down memory lane to a time when things were simpler and toys were all we cared about. Movie directors who understand this basic human desire are becoming incredibly efficient at translating those nostalgic yearnings into profit. 

How much profit, exactly? It’s hard to tell without knowing the full list of post-release expenses. During her interview with The New York Times, Barbie director Greta Gerwig shared that the film’s original budget was approximately $100 million. However, as time passed, it steadily rose to $145 million. Generally, a movie is considered a box office success if it earns two to three times its budget. For Gerwig’s film, that means it needed to gross at least $300 million in round numbers to achieve this status.

Currently, it’s sitting pretty at an approximate international gross of $660.6 million. So far. 

But will Mattel smile all the way to the bank?

Mattel, the owners of the Barbie IP, had quite a surprise for their shareholders in the second quarter. They significantly beat analyst estimates in terms of net profit despite sluggish toy sales. Instead of the expected loss of 3 cents a share, they pulled in a profit of $27 billion, or 10 cents per share.

Net sales fell by 12% as consumer spending came under pressure. Although that’s clearly not a happy outcome, it was less severe than expected. Hot Wheels seemed to have a bigger impact than Barbie in this quarter from a toy perspective, with Mattel hoping that the success of the movie starts to filter into the toys. Importantly, the movie was only released a week before the end of the quarter, so the real impact of the movie should be felt in the next results.

Mattel is going all out with commercialising this IP. They’re teaming up with 165 brands to roll out a whole bunch of Barbie-branded merchandise. All eyes will be on the outcome of this.

CEO Ynon Kreiz knows this Barbie movie is a game-changer. He’s calling it a pivotal moment, saying, “The Barbie movie is a showcase for the cultural power of our brand, our knack for teaming up with top creative minds, and our franchise management skills. This moment will be remembered as a key milestone in our company’s history with the release of the Barbie movie, our first-ever major theatrical film.”

Margot Robbie’s balance sheet has already seen this benefit. Will Mattel investors enjoy the same?

So is it a movie, or a very long advertisement?

Mattel may be making headlines with the Barbie movie right now, but they’re definitely not the first toy company to harbour box office dreams. 

Hasbro, the company behind Monopoly, Battleship, and tons of other beloved board games, clearly enjoys success in the toybox. But it may surprise you to learn just how often their products have had a turn on the silver screen. 

Since 1986, the Rhode Island–based company has been attempting to make it in Hollywood, turning nostalgia into blockbusters. The result is casually referred to as the Hasbro Cinematic Universe, a collection of (mostly unrelated) films, some of which are good, some of which are bad (think Furby-filled nightmares bad) and all of which put nostalgia up on the big screen in an effort to coax audiences back into toy stores. 

You may have made the obvious connection between Hasbro and the recent Dungeons and Dragons flick, but did you know that the toy company also holds the keys to such titles as Transformers (yes, all the Transformers movies), My Little Pony, G.I. Joe, Peppa Pig and Power Rangers? 

So big are the cinematic dreams over at Hasbro that the company tried to own its own entertainment company, Entertainment One. After buying Entertainment One in 2019 for the tidy sum of almost $4 billion, the toymaker quickly realised that making money from movies was not the simple exercise it appeared to be – and for every blockbuster hit that could triple its budget, there would be multiple flops that would do nothing but cost the company precious revenue. 

After much pain and deliberation, Hasbro agreed earlier this month that they would sell Entertainment One to Lionsgate for $500 million, with the transaction expected to close in late 2023. That’s a $3.5 billion loss on that deal, which is an astronomical amount to squander on what is essentially a series of very long advertisements. 

For context – if Hasbro wanted to recoup that loss through movies alone, they would have to have around seven Barbie-level box office hits.

That doesn’t mean that the screen dream has died though. Feature films are still in the works – including a Monopoly-themed film that was this close to being directed by Ridley Scott of all people. Like Mattel, Hasbro has opted to license out their IP to well-established names like Warner Brothers instead of attempting to run the show themselves. 

You can’t buy a Barbie for R99, or even a movie ticket

…but you can buy yourself a treasure trove of amazing business insights in Magic Markets Premium. They might not be wrapped in plastic, but they’re still fantastic.

As you’ll learn in our latest recap on Hasbro, the company is scaling down its in-house cinematic endeavours in order to focus on gaming and streaming. With success in the Wizards of the Coast business in particular, Hasbro might still have their Barbie moment if they play their cards right.

With around 90 research reports on global stocks available in the library, a subscription to Magic Markets Premium for just R99/month gives you access to an exceptional knowledge base that has been built since we launched in 2021. There is no minimum monthly commitment and you can choose to access the reports in written or podcast format. Sign up here and get ready to learn about global companies>>>

About the author:

Dominique Olivier is a fine arts graduate who recently learnt what HEPS means. Although she’s really enjoying learning about the markets, she still doesn’t regret studying art instead.

She brings her love of storytelling and trivia to Ghost Mail, with The Finance Ghost adding a sprinkling of investment knowledge to her work.

Dominique is a freelance writer at Wordy Girl Writes and can be reached on LinkedIn here.

Ghost Bites (AngloGold | Capital & Regional | Grindrod | Northam Platinum | STADIO)

The Finance Ghost
-
1
Ghost Bites (AngloGold | Capital & Regional | Grindrod | Northam Platinum | STADIO)

AngloGold puts Córrego do Sítio on care and maintenance (JSE: ANG)

At a total cash cost way above the gold price, this mine is losing too much money

The Córrego do Sítio gold mine in Brazil is anything but a “gold mine” in the colloquial sense. With a total cash cost of $2,278/oz, it loses money on every ounce produced and sold. The all-in sustaining cost is a ridiculous $3,031/oz, so it’s no surprise that the mine cannot secure capital to ensure its future.

After the mine reported negative free cash flow of $30m in the first six months of the year, AngloGold simply has to stem the bleeding. This means putting the mine on care and maintenance, with associated job losses for employees that couldn’t be placed elsewhere.

Capital & Regional got some support on the cap raise (JSE: CRP)

I liked the underlying acquisition, but it’s a tough environment to raise capital

Earlier this month, Capital & Regional announced the acquisition of The Gyle Shopping Centre in Edinburgh for £40 million. The asset is being acquired at a net initial yield of 13.51%, which seems like a very attractive price. The debt is being provided by Morgan Stanley at a fixed cost of 6.5% for 5 years.

With those sort of numbers and an underwrite by Growthpoint for the equity raise, I expected to see more shareholders support the capital raise. At first blush, it looks like there was significant support because shareholders took up 74.97% of the shares being offered. You need to remember that Growthpoint is in this number though, so the percentage uptake from other shareholders is actually much lower.

Together with the underwritten portion, Growthpoint is taking up 87.40% of the shares being offered. This increases its stake in Capital & Regional to 67.64%.

It helps a lot to have a huge balance sheet behind you, especially in this environment where raising capital is so difficult.

Grindrod: one of the industrial winners this year (JSE: GND)

HEPS growth looks very strong

As we’ve seen with the likes of Bidvest, Grindrod has put in a strong earnings performance in this inflationary period. Perhaps my biggest learning of the past 12 months is that industrial firms seem to outperform consumer-focused companies in inflationary conditions. Unlike Bidvest though, the Grindrod share price hasn’t been exciting this year.

When looking at the latest Grindrod numbers, you need to note that the prior period has been restated to exclude Grindrod Bank which was disposed of.

In its core business, which is very much a logistics play (ports and rail), revenue increased by 32% and EBITDA was up 16%. Although there is clearly margin pressure, a 26% jump in headline earnings certainly doesn’t hurt.

The non-core business helps explain some of the share price disappointment, with the KZN property portfolio continuing to be a blemish on the story. Along with the private equity portfolio, Grindrod recognised R78.7 million in net impairment and fair value losses. For context, headline earnings was R487 million in this period, so the market doesn’t just ignore these losses.

An interim dividend of 34.40 cents has been declared, which is double last year’s interim dividend of 17.20 cents.

Charting Grindrod against Bidvest this year is fascinating:

Northam Platinum releases detailed results (JSE: NPH)

The trading statement was so detailed that the market knew what was coming

The main thing to remember about this financial period at Northam Platinum is that HEPS probably isn’t the best measure of management’s performance. This is unusual, as HEPS exists to take out the distortions and give shareholders a view of the underlying performance.

The problem is that in this case, HEPS ignores huge impairments in the group that I believe are relevant. In particular, the loss on the Royal Bafokeng Platinum stake really hurt shareholders, as Northam went on a campaign to make life as difficult as possible for Impala Platinum. Just take a look at this reconciliation to see how that played out:

Northam ended up accepting the offer from Impala Platinum for the shares in Royal Bafokeng Platinum and received R9bn in cash and a whole lot of Impala shares. In a separate announcement, Northam noted that 91.6% of the received shares have been sold for R2.9bn. Although this gives the balance sheet a boost as the cycle deteriorates, it also locks in a major loss.

So, HEPS fell by 7.5% in the year ended June 2023 and earnings per share (EPS) fell by 75% because of the impairments. You can choose which number you want to work with. I would treat HEPS as the operational performance (solid compared to peer group) and EPS as the management performance in terms of capital allocation (very poor).

A dividend of R6 per share has been declared. The share is trading at around R130.

STADIO keeps going from strength to strength (JSE: SDO)

This would’ve been a great addition to your portfolio this year

For the six months to June, core HEPS at tertiary education group STADIO is up by between 18.6% and 22.1%. That’s a rock solid outcome, although it’s arguably a bit light in the context of the valuation multiple.

On core HEPS guidance of between 13.4 and 13.8 cents for this interim period and core HEPS for the second half of the previous financial year of 9.4 cents, core HEPS over the last twelve months is between 22.8 cents and 23.2 cents. On a share price of R5.65, that’s a Price/Earnings multiple of 24.5x at the midpoint of guidance.

It’s been a volatile year in this sector and relative performance has moved around greatly, with STADIO pulling sharply ahead based on this announcement, closing 6.6% higher on the day:

For now at least, STADIO’s high multiple isn’t blunting share price performance vs. peers.

Little Bites:

  • Salungano (JSE: SLG) announced that the party that had launched a liquidation application against subsidiary Wescoal Mining has agreed to settle the matter. The liquidation has thus been withdrawn. Despite this, Wescoal Mining will commence with a voluntary business rescue process.
  • The resolutions related to the take-private of Advanced Health (JSE: AVL) were approved almost unanimously at a scheme meeting.
  • AYO Technology (JSE: AYO) has entered a financial closed period and therefore needs to postpone the general meeting required to authorise the repurchase from the PIC. Of course, the longer the money stays in the AYO bank account, the better for the company.
  • Kibo Energy (JSE: KBO) announced that subsidiary MAST Energy Development released interim results for the six months to June. The short-form announcement has no information on profitability and I lost interest after spending five minutes looking for the detailed results on the MED website without any luck. Companies usually trade at two cents a share for good reason.

Ghost Bites (African Rainbow Minerals | Blue Label Telecoms | Momentum Metropolitan | South32 | Workforce)

The Finance Ghost
-
0
Ghost Bites (African Rainbow Minerals | Blue Label Telecoms | Momentum Metropolitan | South32 | Workforce)

Congratulations to my Ghost Wrap partners Mazars on their appointment as the auditors of African Media Entertainment!

African Rainbow Minerals tracks the cycle lower (JSE: ARI)

It’s the standard playbook of lower commodity prices and logistical challenges

For the year ended June 2023, headline earnings at African Rainbow Minerals fell by between 18% and 27%. The story is in line with what we’ve seen across most of the sector, with commodity prices under pressure and poor infrastructure putting pressure on sales volumes.

The weaker rand did help a bit at least, though obviously not enough to stop earnings from dropping. Full results are due on 4 September.

Blue Label continues to confuse everyone (JSE: BLU)

Market apathy is a serious problem when something is too complicated

After the three millionth attempt to save Cell C and turn it into something profitable (this time by Blue Label), the group’s numbers are so confusing that most people just don’t bother. This is despite some trusted voices on Twitter / X shouting Blue Label from the rooftops and hoping that someone will listen.

With HEPS for the year ended May down by between 62% and 66%, the announcement doesn’t get off to a great start. Core HEPS is hardly any better unfortunately.

What would help matters greatly is if the announcement actually made any sense whatsoever. Just take a look at this:

So on an adjusted, adjusted, very-adjusted, please-look-away-from-this-section basis, it’s possibly gone up. But I’m not sure. Nobody is.

There’s momentum at Momentum Metropolitan (JSE: MTM)

For the most part, operating conditions have been more favourable this year

The year ended June 2023 has been a much happier one for Momentum Metropolitan. One of the wins (for all of us) is that the impact of Covid on that period was limited vs. the comparable period. Insurance businesses also enjoyed better investment returns (other than in venture capital portfolios) and a favourable shift in the yield curve.

Aside from pressure on venture capital valuations, this happy story was dampened to some extent by lapses in the life business and underwriting losses in short-term insurance.

Of course, there are other complexities that will come to light when detailed results are released on 13 September. In the meantime, a trading statement has guided growth in normalised HEPS of between 15% and 22%.

HEPS as reported is only up by between 2% and 7%, so pay close attention to the normalisation adjustments in deciding whether you are willing to accept management’s view.

To show you how complicated this can get, here’s a screenshot from the announcement showing how they think about normalised HEPS:

South32: the latest victim of the mining cycle (JSE: S32)

Another day, another mining house where the dividend has come back down to earth

If nothing else this year, investors have hopefully learnt the difference between trailing dividend yield and forward dividend yield. In the mining sector, trailing yields (the last dividend vs. the current price) don’t tell you much. Forward yields (the forecast next dividend vs. the current price) are the real story, which is why the share prices drop as commodity prices drop in anticipation of dividends falling.

This is why mining share prices don’t usually react on the day of results based on those results. Instead, they react based on the day’s commodity price movements. The exception is where there’s a significant surprise in the results, like a production result that differs from guidance.

Production hasn’t been a problem at South32, with three production records this year. This goes a long way towards blunting the impact of a drop in commodity prices.

If you look at profit after tax, you’ll see a negative number for the year ended June 2023. This is because of a $1.3bn impairment related to the Taylor deposit at the Hermosa project. Even if we ignore this, underlying EBITDA fell by 47% and margin dropped from 47.1% to 29.4%. As I have been consistently pointing out in the recent mining results, that is still a decent margin. It’s simply the year-on-year story that looks poor.

An area of concern for me is the deterioration in return on invested capital (ROIC) from 33% to just 10%. The group has been investing for growth and there is generally a lagging effect in mining, where today’s spend typically drives profits that will only be realised in the future. This is something to keep an eye on.

Last year, South32 paid an ordinary dividend of 22.7 US cents per share and a special dividend of 3.0 US cents per share. The total dividend this year is only 8.1 US cents, so that’s a 64% drop in the ordinary dividend. By their very nature, special dividends are not used for year-on-year comparative purposes.

Over five years, South32 is trailing competitors like Glencore and Anglo American. If Anglo hadn’t gifted Thungela to its shareholders at a ridiculously low price, the below chart would look different and Anglo would look better.

Workforce: profitable, but only just (JSE: WKF)

The company invested for growth that simply didn’t come

Although revenue for the six months to June increased by 7% and gross profit inched slightly higher, Workforce Holdings had invested in capacity and the demand didn’t come through. This crushed earnings, with EBITDA more than halving to R32.8m and the Staffing and Outsourcing segment bearing the brunt of the pain.

Even cash conversion on EBITDA wasn’t great, with cash from operations of R22.5m (down from R64.6m in the comparable period).

It gets worse by the time we reach HEPS, which collapsed from 14.6 cents to 1.7 cents. After a revolting first half of the year, the company expects the second half to be better.

A very interesting comment in the earnings is that the recruitment business is under pressure because uncertain macroeconomic conditions reduce the likelihood of high-quality candidates leaving their jobs and changing roles. I had never considered this, but it makes sense.

Little Bites:

  • Director dealings:
    • Des de Beer has bought another R12.7m worth of shares in Lighthouse Properties (JSE: LTE)
    • The CFO of Standard Bank (JSE: SBK) sold shares worth R12.6m and a prescribed officer sold shares worth just over R2m.
    • Argent Industrial (JSE: ART) directors and their associates continue to head for the exit, with the latest round of sales being a total of nearly R1.9m.
    • An associate of a director of Mantengu Mining (JSE: MTU) sold shares worth R36k.
  • I’m not sure what the back-story is, but an associate of two directors of aReit (JSE: APO) had to return 9,600,000 shares in terms of a court order. I’m not sure who they were returned to and the value isn’t specified. At the current traded price, these are worth R33.6m.
  • WG Wearne (JSE: WEA) is suspended from trading and as a market cap of just R8.3m based on the last time it traded. For those who are stuck in this thing, you may be interested to know that there’s a new CFO as an internal appointment.

Ghost Wrap #41 (Spur | Adcock Ingram | Bidvest | Bidcorp | NEPI Rockcastle | DRDGOLD | Harmony Gold | BHP | Sasol)

The Finance Ghost
-
0
Ghost Wrap #41 (Spur | Adcock Ingram | Bidvest | Bidcorp | NEPI Rockcastle | DRDGOLD | Harmony Gold | BHP | Sasol)

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:

  • Strong results at Spur that gave the share price another boost on top of the strong positive response to the trading statement.
  • Earnings growth at Adcock Ingram that benefitted from a “normal” flu season, although other segments were perhaps disappointing for investors.
  • An excellent year thus far for Bidvest, supported by strong earnings growth and clear evidence of pricing power.
  • Continued momentum at Bidcorp, which has gone from strength to strength since the depths of the pandemic.
  • NEPI Rockcastle’s appeal as a play on Central and Eastern Europe, a region of real economic growth and demand for retail space.
  • A whirlwind update on recent mining and resources updates from DRDGOLD, Harmony Gold, BHP and Sasol. 

Listen to the podcast below:

Sasol delivers on guidance despite ongoing headwinds

Sponsored Content
-
0
Sasol delivers on guidance despite ongoing headwinds

Sasol’s financial results for the year ended 30 June 2023 were impacted by the volatile global economic landscape and the underperformance of state-owned enterprises in South Africa, which continue to impact both our Energy and Chemical businesses. This impact was, to an extent, offset by a weakening of the Rand/US Dollar exchange rate.

Earnings before interest and tax (EBIT) of R21,5 billion declined 65% compared to the prior year, mainly due to the impairment of assets, inflationary impact on costs, the softening of the Brent crude oil price and refining margins in the latter part of the year. Chemicals basket prices were on a declining trend during 2023, and while we have recently seen some respite with lower feedstock and energy prices, gross margin and global demand remained depressed particularly in our American and Eurasian segments.

Operating profit of R55,4 billion before remeasurement items increased 8% from the prior year, benefitting from gains on the translation of monetary assets and liabilities and valuation of financial instruments and derivative contracts of R6 billion compared to R17,6 billion losses in 2022. Remeasurement items contributed a net loss of R33,9 billion compared to a net gain of R9,9 billion in 2022.

The remeasurement items for 2023 mainly relate to:

  • The full impairment of the South African wax CGU of R0,9 billion, the full impairment of the Essential Care Chemicals CGU in Sasol China of R0,9 billion, and the full reversal of impairment recognised in 2019 on the Tetramerisation CGU in Lake Charles of R3,6 billion; and
  • The Secunda liquid fuels refinery CGU impairment of R8,1 billion at 31 December 2022 after being negatively impacted by an update in macroeconomic price assumptions including higher electricity price forecasts and lower gas selling prices. An additional impairment of R27,2 billion was recognised for this CGU resulting in it now being fully impaired. Sasol continues to advance implementation of its emission reduction roadmap (ERR) in South Africa to achieve a 30% reduction in greenhouse gas emissions by 2030 and comply with the requirements of the National Environmental Management: Air Quality Act 39 of 2004. The ERR involves the turning down of boilers, implementing energy efficiency projects, reducing coal usage and integrating 1 200 MW of renewable energy into our operations by 2030. With no significant additional gas to restore volumes back to historic levels, the ERR assumes lower production volumes post 2030 and also results in increased cost of coal and capital expenditure. Optimisation of the ERR is ongoing with several technology and feedstock solutions underway to partially recover volume post 2030, however the maturity thereof needs to be further progressed before it can be incorporated in the impairment calculation. Although the chemical CGUs in the Secunda complex were also negatively impacted, their respective recoverable amounts remained above carrying values given the products’ higher derivative value.

The safety and wellbeing of our employees remain our top priority.
We remain unwavering in our commitment to embed operational discipline across all our sites, striving towards our ambition of Zero Harm. Sadly, there were two tragic fatalities in the second half of the financial year. We continue to drive our frontline leadership engagements and implement risk mitigation measures to prevent future incidents, ensuring that every member of our workforce returns home safely.

Sasol has made steady strides on our decarbonisation roadmap, with the signing of additional renewable power purchase agreements which are advancing implementation, with renewable power from the Msenge wind farm expected to be online by the first quarter of calendar year 2024. This will support the production of green hydrogen from our existing assets at Sasolburg Operations. We continue to refine our roadmap for a sustainable and affordable transition.

Looking ahead, Sasol is committed to resetting and building resilience across our business, continuing to adapt to market dynamics and mitigate macro environment challenges to the extent possible.

Fleetwood Grobler – President and Chief Executive Officer

VIEW THE FULL INVESTOR SUITE >>

Sasol-Limited-Financial-Results-2023

Ghost Bites (Accelerate | Adcock Ingram | Bidcorp | DRDGOLD | Harmony Gold | RCL Foods | Rebosis | RMB Holdings | Sasol)

The Finance Ghost
-
0
Ghost Bites (Accelerate | Adcock Ingram | Bidcorp | DRDGOLD | Harmony Gold | RCL Foods | Rebosis | RMB Holdings | Sasol)

Accelerate looks to sell Eden Meander for R521 million (JSE: APF)

The buyer is Sasol Pension Fund

Accelerate Property Fund has an ambitious strategy in most of its portfolio and this is a risky time to be following that route. To free up some capital, the fund has decided to sell the Eden Meander Shopping Centre in George to Sasol Pension Fund. I’m a little surprised by that move, as George is growing quickly. It shows how badly they need to sort out the balance sheet, as this reduces the loan-to-value by 300 basis points.

The property was valued at the end of March at R521.7 million and the purchase price is expected to be a minimum of R521 million, based on a 7.5% net income yield capitalised for 12 months from 1 December 2023.

Accelerate bought the property in 2016. I don’t understand why they don’t mention the original purchase price in this announcement, which was R376.9 million at a yield of around 9%. I haven’t dug through to see if they spent more on the property since then, but the yields alone suggest that they’ve done well in terms of timing the acquisition and subsequent disposal.

If the disposal yield was 9%, the price would only be R438 million.

Adcock Ingram grows, but perhaps less than I thought (JSE: AIP)

Was it just my own poor health this year, or was this a serious flu season?

Adcock Ingram needs people to get sick in a normal way, not a Covid-or-nothing kinda way. This winter featured the good ol’ fashioned flu, including the immensely dangerous strain known as man flu. This is good for Adcock Ingram.

On that basis, I was a bit surprised that revenue only increased by 5% and gross profit by 4%. That’s pedestrian to be honest, with trading profit up 6% because the company kept costs under control. At least the operating environment is better overall, giving the company confidence to increase the total dividend by 17% year-on-year despite HEPS only increasing by 12%.

If we dig a bit deeper, we find that the flu season was indeed the primary source of growth. The OTC segment grew by 11% and the consumer segment grew 6%. The prescription and hospital segments could each only grow by 2%. Yet despite this, the prescription segment put in the best performance in terms of trading profit, up 16%.

Perhaps the biggest challenge for this business is that the price of medicine is regulated. The single exit price was only granted a 3.28% increase in January 2023, with a 1.73% adjustment recently allowed as well. This is clearly well below inflationary pressures on costs.

Based on HEPS of 561.3 cents, the Price/Earnings multiple is just below 9.9x and the dividend yield is 4.5%. The share price closed 3.4% higher on the day.

Bidcorp just keeps growing (JSE: BID)

Can anything derail this story?

In the period leading up to the pandemic, Bidcorp wasn’t exactly the fastest growing story on the JSE. The unbundling from Bidvest had been at a significant valuation and the share price wasn’t really rewarding shareholders.

That was then and this is now, with a pandemic in the middle that crushed earnings temporarily.

In a trading statement for the year ended June, Bidcorp has flagged HEPS growth of between 32% and 36%. I’ve used the midpoint of the full year range of 2,030.6 cents and 2,092.1 cents as the inspiration for my chart of the day:

It makes for rather impressive viewing, doesn’t it?

The share price has also been on a rampage since the depths of the pandemic, as evidenced by this chart:

DRDGOLD was saved in this period by the gold price (JSE: DRD)

HEPS growth of 13% is masking the production story

DRDGOLD has released results for the year ended June 2023 and they reflect growth in revenue of 7% and HEPS of 13%. At first glance, that sounds really good. If you look deeper though, you’ll see a drop in production of 8% and a jump in cash operating costs of 16% per kilogram.

It would’ve been a very ugly outcome had the average gold price not done good things for the company, up 16% year-on-year. This was entirely due to rand weakness, as the dollar price was flat.

The production issues included challenges like load shedding and depletion of high-volume reclamation sites.

The company expects throughput for the next financial year to be higher than this year, although cash operating costs are expecting to rise from R697,382/kg to R770,000/kg. All commodity companies live and die based on the price of the underlying commodity, but DRDGOLD is particularly sensitive to the rand gold price. This is why the share price has increased by 72% over the past 12 months.

Harmony Gold has delivered a big jump in HEPS (JSE: HAR)

The company met the upper end of production guidance

When the gold price is doing useful things, miners need to make sure that they deliver on production targets. For the year ended June 2023, Harmony achieved production at the upper end of guidance and achieved an all-in sustaining cost below R900,000/kg.

It says something about the outlook and recent performance that no impairment was recognised in this period after write-downs of R4.4 billion in FY22.

HEPS is expected to be between 747 cents and 850 cents, a jump of 50% to 70%. The share price closed nearly 11% higher on the day at R73.06.

RCL gives tighter guidance on the earnings drop (JSE: RCL)

A special levy by the sugar association has been anything but sweet for shareholders

In the initial trading statement released in July, RCL Foods guided that HEPS would be at least 30% lower for the year ended June 2023. The group has now released more accurate guidance, which has unfortunately deteriorated even further.

The drop in HEPS is now between 39.3% and 46.0%, which means a range of between 64 cents and 72 cents for this period. With a share price of R11, this puts RCL Foods on a Price/Earnings multiple of roughly 16x.

There were various reasons for the drop, ranging from the special levy by the South African Sugar Association through to unrecovered feed costs and the impact of load shedding.

The investment in The LiveKindly Collective (a plant-based eating business) has suffered a R127.4 million negative fair value adjustment.

Rebosis agrees to sell R7bn worth of properties (JSE: REA | JSE: REB)

Two distinct disposals have been announced

The first portfolio that has been sold by Rebosis in the business rescue process is called the CBD Disposal Properties portfolio and the price is just over R3 billion. In a separate transaction called the Hanger 18 Disposals, there’s a deal with two separate components and a total value of R4 billion.

The buyers are various private companies and there are various regulatory and other conditions that need to be fulfilled to finalise the transactions. This is likely to include the Competition Commission so it won’t happen overnight.

The disposals are very close to the independent valuations performed in April 2023, which came out at just under R7.2 billion vs a selling price of R7 billion.

The announcement doesn’t make it easy for anyone to figure out what is still coming in the process. Based on previous announcements, it’s likely that further disposals related to other bank disposals will be announced soon. These properties would be part of the Nedbank-related portfolio based on communicated timelines in previous announcements.

RMB Holdings makes some progress with Integer (JSE: RMH)

Atterbury is causing many headaches but at least there is progress elsewhere

RMB Holdings is in the process of trying to realise its various property investments and return the proceeds to shareholders. It’s easier said than done I’m afraid, as evidenced by the ongoing issues with Atterbury around repayments of loans.

Aside from Atterbury, RMB Holdings also holds 50% in Integer Properties. Integer holds 33.3% in Milanick Properties and has agreed to sell those shares and the related loan account to another shareholder of Milanick for R50 million. This is in line with the property valuation as at the end of March.

The amount is expected to be received during September and Integer will apply these proceeds towards repaying RMB Holdings a portion of the shareholder loan account.

As useful as this is, the disposal only represents less than 5% of RMB Holdings’ market cap. Still, it’s a step in the right direction.

Sasol’s HEPS increased by 13% this year

The inclusion of impairments tells a different story

For the year ended June 2023, Sasol faced many of the same headwinds as other mining companies, like a drop in commodity prices and the ongoing challenges with local infrastructure. Sasol is a complicated beast, so the earnings are also highly impacted by valuations of derivative contracts.

To show you how much difference those valuations can make, there was a positive move of R6 billion this year vs. a loss of R17.6 billion last year. On an operating profit number of R55.4 billion before impairments, that’s a very big difference.

Within impairments, the most significant negative move was in the Secunda liquid fuels refinery unit, which has now been fully impaired. This is based on lower volumes as part of emissions reduction plans and other pressures like higher electricity prices and lower gas selling prices.

With all said and done, HEPS increased by 13% despite EBIT (Earnings Before Interest and Taxes) dropping by 65%. This is because HEPS excludes impairments and EBIT includes them.

The total dividend for the year was R17, a 15.6% increase vs. last year when there was no interim dividend.

Little Bites:

  • Director dealings:
    • The company secretary of Oceana (JSE: OCE) has sold shares worth R382k.
    • The CEO of AECI (JSE: AFE) has bought shares worth R210k.
    • An associate of Des de Beer has bought another R55k worth of shares in Lighthouse (JSE: LTE).
    • A director of Mantengu Mining (JSE: MTU) has sold shares worth R37k.
  • Lewis (JSE: LEW) announced that Global Credit Ratings affirmed its national scale issuer rating of A+(ZA) with a stable outlook. This says a lot about the quality of the company in this macroeconomic environment.

Ghost Bites (Aveng | BHP | Bidvest | Murray & Roberts | NEPI Rockcastle | Spur | WBHO | Wesizwe | Woolworths)

The Finance Ghost
-
0
Ghost Bites (Aveng | BHP | Bidvest | Murray & Roberts | NEPI Rockcastle | Spur | WBHO | Wesizwe | Woolworths)

Aveng is calling this a “year of transition” (JSE: AEG)

Shareholders will hope they transition rather quickly

I must hand it to Aveng, it takes bravery to refer to an operating loss of R1.06 billion as a year of transition, particularly when the underlying businesses made an operating profit of R360 million in the comparable year. The company has re-presented its 2022 numbers to show Trident Steel as a discontinued operation, as this business has been disposed of.

The first paragraph of the overview section makes it sound like this was just a bump in the road for the company. If this isn’t putting perfume on a pig, then I don’t know what is:

In reality, revenue increased 28% and that didn’t help much because of substantial losses at projects like the Batangas LNG terminal project in Southeast Asia. Subsidiaries McConnell Dowell (-R815 million) and Moolmans (-R110 million) both reported an operating loss in this period.

The good news is that at least the balance sheet looks a lot better after the Trident Steel disposal. Other good news is that McConnell Dowell has secured 100% of its FY24 planned revenue and Moolmans has secured 93% of planned revenue. However, as FY23 has just taught us, revenue means nothing without profits.

Let’s hope that the next year will look nothing like the 2023 performance thus far:

BHP: another strong example of how cycles work (JSE: BHG)

With revenue down 17%, you can guess what happened to profits

If you want to see how quickly a mining cycle can swing around, BHP is a wonderful example. The company has released results for the year ended June, reflecting a drop in revenue of 17% and in HEPS of 42%. The dividend is down 56%. All of those percentage movements are in dollars.

The announcement also includes the 2021 numbers, so it’s interesting to see the how the past few years played out. HEPS was 284.8 US cents in 2021 before jumping to 438.1 US cents in 2022. It has now come back down to earth at 256.1 US cents.

Despite the negative year-on-year move, operating profit margins remain highly lucrative. EBITDA margin was 54% in this period, down from 65% in FY22.

Net debt of $11.2 billion is nicely in the middle of the target range of $5 billion and $15 billion.

The share price has been hanging on for dear life over the past year, with rand weakness as the major support for the story:

Bidvest flags strong results for the year to June (JSE: BVT)

Even on a normalised basis, this looks really good

When I was asked to contribute to the Financial Mail Hot Stocks article back in January this year, I was tasked with choosing a stock in the industrials sector. I went with Bidvest and I’m definitely not embarrassed by that pick, with a year-to-date share price return of 26%.

This has been driven by strong earnings growth as Bidvest has enjoyed pricing power and decent demand in its operations. For the year ended June, HEPS is expected to be between 22% and 26% higher. This is a range of R17.59 to R18.17. At the midpoint, this is a Price/Earnings multiple of 15x.

Normalised HEPS excludes acquisition costs and a few other things, with a range of R18.42 to R19.06 and a movement of between 15% and 19%.

Whichever metric you use, this is a strong result for Bidvest. Full details are due on 4 September.

Murray & Roberts sells its non-core solar business (JSE: MUR)

You didn’t even know about this business, now did you?

As a construction business, Murray & Roberts prefers to give shareholders sleepless nights over major projects rather than own a small profitable solar wholesaler. Jokes aside, a solar business simply doesn’t fit with the rest of the group. I’m not even sure what it’s doing there.

Murray & Roberts will sell its 80% stake in Aarden Solar to a private buyer for R73 million. That implies a company valuation of R91.25 million, which is very high on a profit of R6 million for the year ended June 2023. I have no idea why the buyer is paying a 15x Price/Earnings multiple for a business that sells solar equipment on a wholesale basis. I can certainly see why Murray & Roberts is quite happy to let it go, with the R73 million giving a boost to working capital.

For context, you hopefully noticed further up that Bidvest (as in Bidvest GROUP) is trading at 15x. Even with adjusting for a control premium, this solar valuation is wild.

NEPI Rockcastle gives full details on a strong period (JSE: NRP)

Distributable earnings per share is up by 24.9% – an excellent result

Of all the property funds available on the local market, NEPI Rockcastle is putting its hand up as a strong contender for top spot at the moment. The Central and Eastern Europe exposure is really paying off, despite the terrible situation playing out nearby in Ukraine. On a like-for-like basis, net operating income increased by 15%.

This is a fast growing region that is also attracting the attention of international retailers, with NEPI Rockcastle ready to capitalise with its shopping malls. It says something about shareholder support for this story that the last scrip dividend was elected by holders of 85% of shares in issue, helping the company retain cash and bring down the loan-to-value ratio. That ratio was further improved by higher valuations of the portfolio, up 1.6% since December 2022. The loan-to-value ratio of 33.4% is well below the strategic threshold of 35%.

There’s another scrip dividend on the table at a 3% discount to the five-day VWAP. If you read the Little Bites section today, you’ll see that scrip dividends are popular among property funds

Interestingly, the distribution per share is a capital repayment as the default option. Shareholders should consider what that means for them from a tax perspective.

Spur gives full details on its strong earnings (JSE: SUR)

The share price added another 3.7% to the recent gains

Spur certainly has the wind in its sails, with the company creating excitement in the market that has been on par with Toddler Ghost’s joy at seeing the large pirate ship at our local Spur. He’s not much of an ice cream fan (shockingly), so I use that as an excuse to eat most of his waffle. I view this as good parenting.

Waffles and pirate ships seem to be the order of the day for plenty of families, with Spar reporting growth in HEPS of 81.1%. As I indicated when the trading statement first came out, this isn’t just a base effect. This is truly a blowout performance, with the year ended June being a period that Spur won’t easily forget.

The result has been driven by strong revenue growth, although the cadence over the year is sobering. In the first half, franchised restaurant sales were up 31.5%. In the second half, they were up 15.1%, so the growth for the year was 23%. The Spur brand has been the shining star within the group, with a strong menu offering even during load shedding. This is in sharp contrast to my local Mugg & Bean that inexplicably closes when the power goes off.

A final dividend of 110 cents per share has been declared, taking the full-year dividend to 192 cents. At the current price of R28, this is a dividend yield of 6.9%. A yield like this is the benefit of buying a company like Spur on a Price/Earnings multiple of 10.7x.

The question is: will the share price momentum continue?

WBHO bucks the construction trend (JSE: WBO)

Here’s some rare good news in this sector

For the year ended June 2023, WBHO’s revenue has increased by at least 30% and operating profit is up by 25%. The order book is 47% higher, which bodes well for ongoing revenue.

Although the exit from Australia has been slower than expected, there’s no change to the expected costs of the exit.

Based on what is clearly a strong underlying result, HEPS from continuing operations is up between 27% and 33%. Based on total operations, HEPS is up by a silly range of 139% to 141% as the group has swung from a loss to a profit when everything is included.

Wesizwe finally resumes operations at Bakubung Platinum Mine (JSE: WEZ)

With PGM prices under pressure, the company cannot afford a drop in volumes

After prolonged negotiations, Wesizwe has announced that the Bakubung Platinum Mine is finally operational again. The company even calls it a “peace agreement” which gives you an indication of how unpleasant it has been

A collective agreement needs to be signed between Wesizwe and employee representatives within 30 days of ending the strike.

Woolworths gives updated earnings guidance (JSE: WHL)

Importantly, the guidance excluding David Jones is unchanged

Woolworths released an initial trading statement at the end of July, noting that group earnings would be at least 20% higher for the 52 weeks ended 25 June. This has been updated to show HEPS growth of 25% – 35% and adjusted HEPS growth of 30% – 40%.

This includes nine months’ worth of David Jones in the current year vs. twelve months in the prior year. This would normally have a negative impact on current earnings vs. comparable earnings, except where David Jones was doing badly in the comparable period.

This is why HEPS growth from continuing operations is between 10% and 20%, as this excludes David Jones from both periods. This is the correct number to focus on and this guidance is unchanged from the July announcement.

Little Bites:

  • Director dealings:
    • The CEO of Equites (JSE: EQU) sold shares in the company worth R3.8m. It’s a small portion of his holding, but still relevant.
    • A director of British American Tobacco (JSE: BTI) bought shares worth £200k. This was in addition to a number of executives who acquired shares under company investment plans.
    • A director of AngloGold (JSE: ANG) has bought shares worth $80.6k (in the form of American Depository Receipts)
    • You guessed it – Des de Beer has bought more shares in Lighthouse Properties (JSE: LTE), this time worth R582k.
    • The CEO of Sirius (JSE: SRE) and a close associate bought shares for a total of £25k.
    • The lead independent director of Nedbank (JSE NED) bought shares worth R250k.
    • A prescribed officer of Thungela (JSE: TGA) sold shares worth R191k.
  • In case you’re wondering why Des de Beer keeps buying up shares in Lighthouse Properties (JSE: LTE), part of the reason is that the scrip dividends help him build up his stake even further. The scrip dividend price has been announced as a 3% discount to the closing price on 21 August. It’s very likely that he (and other executives) will accept the scrip dividend instead of a cash distribution.
  • In a similar vein, Capital & Regional (JSE: CRP) has announced that the scrip dividend will be calculated based on a share price of R12.70783, That’s a helpful discount to the current price of R13.30. Again, property funds do this to entice shareholders to take shares rather than cash.
  • In a step that might give us a clue about the strategic direction of the company, PSG Konsult (JSE: KST) is changing its name to PSG Financial Services. The ticker (i.e. KST) remains the same.

Knowledge is power when it comes to using structured products

Sponsored Content
-
0
Knowledge is power when it comes to using structured products

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.

As the acceptance of structured products has grown, so has the need to keep clients informed about their role in an investment portfolio and the specific types of products available.

So, what do advisers and their clients need to understand before proceeding with an investment? Let’s look at some of the key issues.

What is the client’s broad investment strategy? As an adviser, you’ll have a detailed investment strategy in place for your client, considering life stage, income requirements, risk tolerance and so on. A structured product needs to fit into this broad strategy.

While each investor’s investment plan will differ, broadly speaking a structured product will be included in a portfolio as they are an ideal alternative that can be used for several reasons:

  1. To build up an exposure in a particular asset class, i.e. offshore country exposure such the US, UK etc or sector specific exposure such as tech or financial indices.
  2. To gain capital protection in a specific market or index where the returns might be volatile.
  3. As a useful strategy to diversify currency exposure across your investments.
  4. To take advantage of short or medium-term market conditions where the use of gearing can amplify returns while protecting the downside.

While each structured product is different, most share the following features, which could influence the decision about which structured product to invest in:

  • Capital protection: Capital protection is probably the best-known feature of structured products. A typical structured product (usually with a maturity of between three and five years), will have 100% capital protection, or with protection of losses up to a certain percentage (say 20% or 30%). This feature is attractive for investors concerned about stock market volatility over the medium term.
  • Geared returns: This simply means that investors earn a multiple of the return of the underlying index or group of indices. Returns are often capped at a certain level, but investors will still earn the multiple up to that level, at which point the investment return is capped. For example, the structure may give the investor two times the return of the underlying index, capped at 60%. So, if the index grows by 50% over five years, the investor will earn a 100% return. If the index grows by more than the 60% cap, the investor will earn 120% (the 60% times two). Only if the index returns more than 120%, will the investor lose out on the upside beyond that level. These payoffs are therefore very useful for investors only mildly bullish about the underlying market.
  • Returns can be in rands or foreign currency: It’s important to look at the currency to which the product is linked. Structured products will often link returns to a well-known stock market index, such as the MSCI World, S&P 500, or FTSE 100. Others will be linked to a portfolio of various indices. Some may offer the return in US dollars, euros, or sterling, while for others, the returns will be in rands. Investors will choose the investment product depending on which currency exposure they are looking for.

What are the liquidity requirements of the investor?

Structured products come with a defined term (three or five years are the most common investment periods). While most issuers will provide some sort of commitment to pay out, should the investor need to access funds before the product matures, this can result in the investor not realising the full potential of the investment. On this score, investors in structured products should only invest with cash that they can tie up for the duration of the investment period.

What are the risks?

Structured products are generally low-risk investments but are not risk free. Investors should for example be cognisant of credit risk. A structured product is essentially a contract between the investor and issuer, with the latter promising to deliver the returns described in the contract. Most structures will be issued by well-known, highly rated banks, so the risk is generally low, but not zero. On this score, it should be noted that the recent high-profile takeover of Credit Suisse by UBS would not have a negative effect on the underlying credit of structured products that were linked to the senior debt of Credit Suisse.

“Structured products can be a true enhancement to an investment strategy”.

Brian McMillan, Head of Retail Structured Products, Investec

Finally, each structured product will have its own combination of features, and when the adviser and client assess their role in the context of the overall investment portfolio, they can be a true enhancement to the investment strategy.

About the latest Investec Structured Product:

The Investec USD S&P 500 Autocall is a structured product that is linked to the performance of the S&P 500 Index.

  • Listed on a stock exchange, it is designed to provide investors with an attractive return, even if the S&P 500 Index makes only modest returns over the investment term.
  • It provides exposure in US Dollars with a high degree of capital protection.

However, capital is at risk if no early maturity occurs, and the Index has fallen more than 30% on the maturity date. Learn more here.

Product closes 16 October 2023.

Disclaimer:
https://www.investec.com/en_za/legal/structured-products-disclaimer.html

Ghost Wrap #40 (Aveng | Curro | Libstar | Transpaco | Standard Bank | Thungela | Exxaro | Sibanye | Gold Fields | Master Drilling)

The Finance Ghost
-
0
Ghost Wrap #40 (Aveng | Curro | Libstar | Transpaco | Standard Bank | Thungela | Exxaro | Sibanye | Gold Fields | Master Drilling)

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:

  • Aveng’s poor recent results and the volatility in the share price around the time of the earnings release.
  • Curro’s solid year-on-year growth, driven mainly by pricing increases in tuition fees.
  • Libstar’s substantial drop in HEPS, with mushroom production as the biggest problem after the Shongweni facility was destroyed.
  • Transpaco’s encouraging trading statement, putting another tick in the box for the packaging sector this year.
  • Standard Bank’s massive jump in earnings, with the African regions shining through.
  • Various mining sector updates that are almost all negative, including Thungela, Exxaro, Sibanye, Gold Fields and Master Drilling.

Listen to the podcast below:

1...747576...175Page 75 of 175

Focuses on making market news and investment concepts accessible, understandable and fun!

Ghost Mail is free to read

SUBSCRIBE TODAY

Partner with Ghost Mail

CONTACT US

© Ghost Mail

Verified by MonsterInsights