Egypt’s B2B digital pharmacy marketplace, Grinta, has announced the acquisition of Auto-Cure. Financial details of the deal were not disclosed. Since launching in 2021, Grinta has made two acquisitions (PH Store and EME) and has raised US$8 million in seed funding (November 2022).
AI recruitment company, Talents Arena, has raised US$750,000 in pre-seed funding from UI Investments and several angel investors. The Egypt-based firm is a Flat6Labs portfolio company and an alumnus of the Plug and Play startup accelerator programme. The funds will be used to accelerate the AI hiring engine and expand its footprint in the Saudi market, which already makes up 25% of its client base.
Moove, the mobility fintech founded in Nigeria, has announced that it has raised additional funding to help with its global expansion plans. The US$76 million raised comprises $28 million in equity from new and existing investors, $10 million in debt and $38 million raised in the last year (not previously disclosed).
A15 has led a seed funding round with participation from group of angel investors, in Egypt’s Buguard. The US$500,000 investment will help the cybersecurity startup grow its team – this is the company’s first external fundraise.
Rwanda’s SOUK Farms has received an undisclosed investment from Goodwell Investments’ uMunthu II fund. The funding will provide SOUK, a grower and exporter of fresh horticultural produce from Rwanda, the capital it needs to scale up its operations.
Airtel Africa announced that its wholly owned subsidiary, Airtel Uganda intends to list on the Main Investment Market Segment of the Uganda Securities Exchange. The initial public offer will consist of 8,000,000,000 ordinary shares, representing 20% of the company.
Glencore’s earnings have also taken pain (JSE: GLN)
HEPS fell by 58% year-on-year
No mining group is safe from the negative move in the mining cycle this year. In many cases, we’ve seen HEPS more than halve. Glencore finds itself in that bucket, with a drop in HEPS of 58% for the first half of the year.
To help give context to that number, here’s a chart of Glencore’s six-monthly HEPS going back to 2018:
The good news is that the group is still making a lot of money, with adjusted EBITDA of $9.4 billion and cash generated from operations of $8.4 billion, a solid cash conversion rate. Net income attributable to equity holders was $4.6 billion.
Adjusted EBITDA mining margins were 25% in the metals operations and 50% in the energy operations, in both cases well down from 43% and 66% respectively in the comparable period.
From a capital allocation perspective, the group has been focusing on investing in “transition metals” like aluminium, copper and nickel.
As the group is running a net debt balance well below its target, there will be $2.2 billion in additional returns to shareholders. This will take the form of a $1 billion special cash distribution and a $1.2 billon buyback programme running until February 2024.
Glencore isn’t everyone’s cup of tea, but they sure do know how to manage a balance sheet and drive shareholder returns. I love seeing a company actively managing the debt:equity ratio and not falling into the trap of having a lazy balance sheet.
Hooray for Hulamin (JSE: HLM)
HEPS has approximately doubled for the six months to June
Hulamin caused a buzz in the morning with the release of a terrific trading statement for the six months to June. HEPS is up by between 94% and 113%, coming in at between 91 cents and 100 cents. It’s probably safer to use normalised HEPS, which increased by between 83% and 103%, which means a range of 66 cents to 73 cents.
Either way, the share price closed the prior day at R2.63 and shot up more than 25% in morning trade in response to these numbers. As Price/Earnings multiples go, this is one of the lowest ones around!
PowerChina goes Dutch with Kore Potash (JSE: KP2)
More costs are going to be incurred to finalise the EPC contract
Those who have been following Kore Potash will know that the company has been negotiating with SEPCO for a while now to finalise an Engineering, Procurement and Construction (EPC) contract for the construction of the Kola Potash Project.
The parent company of SEPCO is PowerChina International. PowerChina stepped in earlier this year to review the design and construction schedule and has now requested further engineering design work before finalising the EPC proposal.
The cost of this is $10 million. PowerChina is willing to incur roughly half of that cost, with exposure to overruns. Kore Potash’s contribution is capped at $5 million.
To achieve this, Kore Potash needs to immediately pay $1 million. The company has already raised $0.8 million from the Chairman of the company and a related party. There are other major institutions who have up to 21 business days to top up that amount if they so desire.
The remaining contribution by Kore Potash needs to be paid in three tranches between October 2023 and 12 months from the date of signature of the EPC contract. As is always the case in junior mining, investors can expect further capital raises and dilution.
The parties are aiming to sign the EPC contract before the end of January 2024. The Summit Consortium as key financiers remain supportive of this.
Nedbank’s metrics are heading the right way (JSE: NED)
As we’ve seen across the board though, impairments are climbing sharply
Hot on the heels of the Standard Bank trading update that looked incredibly strong, we have Nedbank with a more modest but still positive earnings update. This is a detailed set of numbers rather than just a trading update, covering the six months ended June.
Headline earnings per share (HEPS) is up by 11% and so is the interim dividend, with a payout ratio of 57%. The net asset value per share (a very important metric in banking, also called NAV per share) is 8% higher to R224.58. The share price is trading at a slight premium to NAV per share, with the market looking to a return on equity of 14.2% to support this number.
I would strongly debate whether 14.2% is high enough to support a premium to NAV. Banking stocks in some cases have perhaps run too hard.
Looking deeper into the income statement, revenue growth (including associate income) grew by 14% and pre-provision operating profit was up 22%. This shows you what would’ve happened in a consistent credit quality environment. With load shedding and such a poor macroeconomic environment, this is anything but a consistent credit environment. Impairments jumped by 57%, muting the story and explaining why HEPS only grew by 11%.
We can go one step deeper and look at what the key drivers of revenue growth were. As expected, net interest income was the winner with 18% growth vs. non-interest revenue at 7%. From an efficiency perspective (a measure of cost control), the cost-to-income ratio headed in the right direction from 56.1% to 52.9%.
The outlook isn’t great, with almost no economic growth in South Africa for the remainder of the year. Nedbank does expect interest rates to stay flat for the rest of 2023 though, so consumers will be hoping that this is the correct view.
Quilter is focusing on what it can control (JSE: QLT)
And as the latest numbers show, the company is doing a great job
Asset management and advisory firms are always going to be impacted by broader asset valuations in the market. They earn fees based on assets under management. As those assets increase, so do the fees. This generally makes them high beta stocks that move in line with broader market prices.
Within that framework, it’s important to understand that they can control (1) how successfully they attract inflows and (2) their cost base. This is the right way to judge the success or failure of a company in this space.
Quilter is nailing both of those things. Don’t focus on the growth in Assets under Management and Administration of just 2% during the six months to June. Rather focus on the core net inflows of £0.7 billion, an impressive result when you consider the higher interest rates environment across the world and the impact this is having on income available for saving. Unsurprisingly, the High Net Worth and Affluent channels did well here, as those people still have money to save.
Although group revenue only increased by 3%, operating margin improved from 20% to 24% and that was good enough to boost adjusted profit before tax by 25%. Great cost discipline really helps here and there are further savings planned under the “Simplification” project.
The dividend is up by 25% as well, so the cash is following the profits.
There are some big distortions in profitability even at HEPS level. The company discloses adjusted earnings per share that increased by 34% and that’s probably the right metric for profitability. If nothing else, look at the growth in the dividend.
Tongaat Hulett updated the market on business rescue (JSE: TON)
The monthly report has more details on the preferred equity partner, Kagera
Each month, Tongaat Hulett needs to update the market on its business rescue proceedings. Although the news of Kagera as the preferred strategic equity partner isn’t new, the report does go into further details.
The idea is that Kagera will acquire the complete sugar division of the business, including the investments in Zimbabwe, Mozambique and Botswana.
Kagera is owned by Tanzanian businessman Nassor Seif. This falls under a group called Super Group, with no relation to the JSE-listed group of the same name. They have over three decades of experience in sugar and agriculture in Africa. Other operations in the group are in the logistics and industrial sectors.
The ongoing existence of Tongaat Hulett is important for reasons that go far behind the plight of current shareholders. Based on Kagera’s experience in difficult operating conditions, this plan just might work!
Business rescue is about saving a business, not saving the shareholders or even the creditors.
Vodacom drops the pre-public holiday bombshell (JSE: VOD)
The Competition Commission wants to block the deal with Vumatel and Dark Fibre
This is very big news. The telecoms sector is not a great place for shareholders right now and the companies in the sector are trying to improve their fortunes by moving into new sources of revenue. Fibre is an obvious area of expansion for a company like Vodacom, which is why the company wanted to acquire 30% in a newly formed entity that would house Vumatel and Dark Fibre Africa.
ICASA had no problem with it, but that’s a totally different regulatory framework to the Competition Commission. Despite Vodacom and Community Investment Ventures Holdings (the joint venture party) having committed to address competition related concerns through a list given to the authorities, the Competition Commission has decided to recommend to the Competition Tribunal to prohibit the transaction.
There is clearly a long way to go here, as the Commission doesn’t have the final say. The Tribunal still needs to make a decision, with the Competition Appeal Court as last chance saloon thereafter.
A big part of the argument in favour of the deal is that Vodacom is ready to invest R60 billion over 5 years in South Africa. This investment of R13 billion is over and above that number.
But then again, if South African regulators prioritised investment in our economy, don’t you think our economic growth would look a little different?
Remgro (JSE: REM) is also part of this transaction. The company hasn’t released an announcement yet. This will presumably be coming on Thursday.
Little Bites:
Director dealings:
There’s a lot of action on the Novus (JSE: NVS) share register. In what can only be another block trade, the dynamic duo at A2 Investment Partners have acquired R95.7 million worth of shares in Novus. For context, this is a company with a market cap of just over R1 billion.
A director of Lewis (JSE: LEW) has sold shares worth just under R2 million.
Brimstone Investment Corporation (JSE: BRT) has released a trading statement for the six months ended June. The reason that this is only a “Little Bite” is because the trading statement focuses on HEPS, which isn’t the right metric for an investment holding company like Brimstone. Growth in HEPS of between 234% and 244% doesn’t really tell you much about the underlying portfolio. Net asset value (NAV) per share is the right metric. As there was no mention of this in the announcement, I can only assume that the movement is less than 20%. We will find out on 4 September.
The Calgro M3 (JSE: CGR) share buybacks are marching forward, with 3.3% of the company’s share capital repurchased between 29 June and 7 August. This is an allocation of nearly R13 million worth of capital. The company has authority to repurchase up to 20% of its shares in issue until the next AGM.
Zeder’s (JSE: ZED) special dividend of 5 cents per share has still not achieved approval from the SARB, so the payment date cannot be confirmed yet.
Sygnia’s (JSE: SYG) lease agreements with related parties have been determined by PSG Capital as Independent Expert to be fair to shareholders.
Headline earnings increase of 10% driven by strong revenue growth partially offset by increases in retail impairments
Nedbank wants to ensure that Ghost Mail readers have a proper understanding of the numbers. To assist with that, CFO Mike Davis also gave me some of his time to ask whatever questions I wanted. Here’s the summary:
GHOST: Are South African consumers eating into what little savings they have, or are they managing to tread water at this interest rate level? What is driving the narrative in the market that the next rate hike is the one that breaks the story?
MIKE DAVIS: The reality is that whether there’s another 25bps hike or not, the combined effect of rates currently sitting at 11.75%, high inflation, low growth and low levels of employment means that consumers are battling. It’s not just about the next hike. We are seeing this in the Retail and Business Banking franchise in particular. There’s pressure across the board in consumer banking, including home loans, vehicle finance, personal loans and card. The most sensitive vintage in the book was originated at the low point in the interest rate cycle and those borrowers are now struggling. Consumers are drawing down on savings to meet higher levels of debt. The corporate book is stronger than the retail book, as corporates have retained strong balance sheets and sat on cash. They’ve been particularly careful.
GHOST: Let’s talk commercial property. This seems to be a focus area on Twitter (X!) when I tapped into the hive mind there. How is that book looking? Rebosis?
MIKE DAVIS: There are a few counters in business rescue, as we’ve detailed in the results. There is obviously uncertainty around this. The Rebosis process should complete in August and we acknowledge that there is risk of an outcome that is worse than expected.
GHOST: What pockets of growth can you see for Nedbank? We understand the broader macroeconomic picture, but where can Nedbank do relatively better than competitors?
MIKE DAVIS: The Nedbank brand is stronger than market share might suggest. We over-index in vehicle finance in terms of market share with our MFC business. But our retail franchise is sub-scale when viewed through that lens. One of the things we can do better is cross-sell, like getting better at selling insurance to the banking client base.
GHOST: The vehicle sales environment in South Africa doesn’t make much sense in terms of affordability. What trends are you seeing there, particularly important as MFC has been a big part of Nedbank’s success?
MIKE DAVIS: We’ve definitely seen consumers trade down into cheaper vehicles. This still supports overall growth and churn. South African consumers are unusual in that they would rather default on their home loan than vehicle finance, in many ways a function of the state of public transport in our country. We’ve lost some market share in this space by being selective on origination. The most sensitive vintage is loans that were originated at the time when rates were lowest. This is a similar trend to home loans, but not as severe as we are seeing there. This is actually a great time to originate loans. If a consumer can afford the finance in this environment, that’s high quality credit.
GHOST: Finally, what are your thoughts on competitors like Discovery and Old Mutual still to come? What about the likes of Bank Zero?
MIKE DAVIS: The broader the competitive landscape, the better for consumers. All players in this space need to compete on quality or price. The Old Mutual push isn’t a surprise to us, as we suspected a bank entry when Old Mutual was selling down Nedbank. You also need to think of the telcos and retailers and their push into financial services. What about Amazon and Google? Everyone wants a piece of the financial services pie and the competitive landscape is broader than just the obvious banks, particularly in payments and in-store credit. The big banks like Nedbank have large balance sheets and strong cash profits almost regardless of the economy, which lets them defend their positions. We have invested heavily in our digital transformation and our clients are very digitally active. So yes, there are new players in this space all the time, but Nedbank has been evolving digitally to respond to this.
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 week’s episode of Ghost Wrap, we play rock paper scissors (well, almost):
Rock: AngloGold, Pan African Resources and Impala Platinum showing us that times are tough in mining.
Paper: Mondi and Sappi reflecting highly cyclical numbers, with Mpact delivering really strong results in this period.
Scissors: a sharp set of numbers came in from Spur and Standard Bank.
The company is making its largest-ever single investment
It really wasn’t that long ago that the Gemfields share price was coming under a lot of pressure from violence in Mozambique. Thanks to what is essentially terrorist activity in the region, many investors got spooked.
Perhaps thanks to the right working relationship with government, the Montepuez Ruby Mining (MRM) business has managed to escape harm. Gemfields is clearly feeling confident about its future there, as the company has committed to constructing an additional processing plant at the facility.
This project will triple MRM’s processing capacity, so the company must also be feeling good about ruby prices achieved at recent auctions.
The investment required is around $70 million but the price has actually been agreed in rands. The cost is spread over three years, starting in 2023 and on a 30% | 60% | 10% basis. The mining fleet will also need to be expanded in 2025 as this processing plant is put to work.
Impala Platinum flags a big drop in earnings (JSE: IMP)
Sales volumes and price per ounce both fell this year
This environment has been somewhat of a perfect storm for the mining industry, particularly the local platinum players although we’ve also seen pain at the likes of AngloGold. In a trading statement, Impala Platinum has flagged a drop in HEPS for the year ended June of at least 20%.
Importantly, that is the minimum required disclosure from a JSE perspective. I would wager that the earnings drop is a lot worse than that.
Group production increased by 2% (managed operations up 6% and joint ventures down 1%), hamstrung by issues ranging from load curtailment by Eskom through to cable theft challenges. Mining in South Africa is an extreme sport, with the operations in Zimbabwe also suffering load shedding.
Producing the stuff is one thing. Selling it is quite another. Sales volumes fell by 6% and the price per ounce dropped by 4% per ounce in rands. Even a 16% depreciation of our currency against the dollar wasn’t enough to offset the pressure on PGM pricing.
To make it worse, Impala Platinum didn’t escape the inflationary pressure on input costs. Whenever a company doesn’t disclose a comparative number, it’s because the answer is ugly. I went digging in the 2022 report and discovered a cost per 6E ounce of R17,364 vs. the cost this year of R19,840. The price per ounce sold fell from R37,703 per 6E ounce to R36,120.
So, this tells us that profit per 6E ounce has been smashed from R20,339 per 6E ounce to R16,280 per ounce. That’s a 20% drop in profit per ounce along with a drop in sales volumes of 6%.
A 20% drop in HEPS? It’s going to be a whole lot more than that. The free cash flow is going to be even worse, with capital expenditure up from R9.1 billion to R11.5 billion.
As an aside, I decided that the Impala Platinum numbers would be perfect to use in illustrating chart crimes to you. This is no reflection on the company whatsoever – I simply used these numbers to make the point clear to you. After all, Ghost Bites is all about empowering you to be a better and more informed investor and trader.
The first crime is when a big difference is made to look like a small one:
The second crime is when a fairly big difference is made to look absolutely gigantic:
The lesson here? Be very aware of charts with a Y-axis that has been set up to trick you. This is especially problematic when the Y-axis is hidden and there are no gridlines, like in these examples!
Pan African achieved revised production guidance (JSE: PAN)
Net debt has come down significantly
Back in May, Pan African Resources gave the market revised production guidance. Considering that the year-end of June was soon thereafter, one would hope that the company would have met that guidance. This is indeed the case, with production of 175,209oz.
Sadly, this is well off the record production achieved in FY22 of 205,688oz. The group has given production guidance for FY24 of 178,000oz – 190,000oz, so that’s still not a recovery to FY22 levels.
All-in sustaining cost is between $1,325/oz and $1,350/oz, significantly higher than $1,284/oz in the prior year. When production levels come off, the cost per ounce increases.
The good news is that net debt declined from $49.9 million at the end of December 2022 to $18.9 million at the end of June.
PPC executes an employee B-BBEE deal (JSE: PPC)
This deal is for 10% of PPC South Africa, but is the funding rate too high?
There are a number of different approaches to B-BBEE transactions. Whilst I continue to wish that the universe of investable B-BBEE schemes on the JSE would improve, the reality is that most companies seem to shun this approach in favour of either employee schemes or that old favourite, a well-connected consortium.
PPC has at least taken the route of empowering employees, with a deal for 10% of PPC South Africa that will be weighted in favour of historically disadvantaged individuals. To facilitate the deal, PPC will loan R380 million plus R975k for securities transfer tax to the B-BBEE trust. The loan will be repaid through allocating 75% of dividends to the debt, with 25% distributed to the trust’s beneficiaries. As “trickle dividends” go, that’s quite high.
Those dividends have quite a mountain to climb, as the debt is priced at the South African prime rate. Unless there is a material improvement in PPC’s local business, I can’t see much value being transferred to staff through this scheme. They will get the dividend and not much else.
Spur: people with a taste for profits (JSE: SUR)
Even with a through-the-cycle lens, these are big numbers
Despite the pressure that South African consumers are clearly under, the kids still like ice cream and stressed out parents need calories and usually something to drink as well. Perhaps assisted by load shedding and the alternative of a cold meal at home, Spur has released exceptionally strong numbers.
In case you’re wondering whether this is just a Covid base effect, as the exact timing of lockdowns is starting to become a hazy memory, here’s a chart of HEPS over the past few years:
As you can see, the latest performance is incredibly impressive. This is more good news after Spur recently announced the acquisition of a 60% stake in the Doppio Group, a deal that seemed to be well received on Twitter / X / whatever you want to call it.
I used the midpoint of 2023 HEPS guidance in the chart. The range in the trading statement is growth of between 78% and 83%. Although there were once-offs in the base (like the settlement of a dispute with SARS), the chart shows you how strong these latest numbers are.
Share buybacks are useful in boosting HEPS but a result like this still needs a strong top-line performance. That’s exactly what Spur delivered, with total South African sales up 22.5% for the year ended June. There was a notable slowdown in the second half of the financial year, with sales growth of 14.4% vs. 31.3% in the first half. For whatever reason, John Dory’s bore the brunt of that issue with a 1% decline in the second half, a really poor performance vs. the next-worst Roco Mama’s at 4.7% growth. Panarotti’s managed 9.6% growth in the second half, with Spur as the big winner with 16.9% growth in this load shedding environment.
Although a relatively small part of the group, Speciality Brands (Hussar Grill, Casa Bella and Nikos – the segment that Doppio Zero will slot into) grew by 42.2% for the full year. The second half performance was 27.2%, which confirms that a glass of wine in a restaurant is more fun than staying home in the dark.
Little Bites:
Director dealings:
The COO of Kibo Energy (JSE: KBO) has sold shares worth roughly R540k.
The company secretary of Oceana (JSE: OCE) sold shares worth R103k.
In something that you certainly won’t see every day, 96.4% of shareholders in Acsion (JSE: ACS) voted against the reappointment of PKF Octagon as the auditor at the AGM.
In case you’re wondering just how many obscure holdings of certificated shares are in existence out there, Invicta’s (JSE: IVT) odd-lot offer achieved a repurchase of 37,501 shares of which 9,513 were still in certificated form! Yes, that literally means a situation of share certificates hiding away in your granny’s top drawer.
If you are a shareholder in Crookes Brothers (JSE: CKS), then you may want to refer to the circular for the disposal of the deciduous fruit farming business at this link.
Montauk Renewables (JSE: MKR) used SENS like a PR system with its announcement about a letter of intent signed with EE North America to deliver CO2 volumes to the company. The announcement gives no financial information whatsoever and the delivery period (assuming it goes ahead) will only begin in 2026.
AngloGold releases details behind the drop in earnings (JSE: ANG)
HEPS fell by 54% and free cash flow was negative in this period
In the six months ended June, probably the only highlight at AngloGold Ashanti is that the second quarter was better than the first quarter. If you add the two quarters together, you still get to a pretty horrible year-on-year performance.
It’s little wonder that the announcement focuses on the cadence (Q2 vs. Q1) rather than the year-on-year numbers. Production in the second quarter was 12% up on the first quarter and all-in sustaining costs were 4% better. The group is trying hard to convince investors that the second half of the year will suck a lot less than the first half, with full-year production guidance maintained and costs expected to improve.
The problem in the first half is that production was flat year-on-year and the average gold price received per ounce only increased by 2%. When all-in costs per ounce jumped by 15%, that’s a big problem for margins. Gross profit fell by 23% and HEPS tanked by 54% because of the impact of debt.
The free cash outflow of $205 million is concerning. The comparable period was an inflow of $471 million, admittedly boosted by legacy payments of $460 million from Kibali.
The challenge in the mining industry is that the capital expenditure requirements are substantial. If cash profits take a tumble, it can cause negative free cash flow and a deteriorating balance sheet. AngloGold will need to deliver a much-improved second half of the year.
Europa Metals releases further drilling results (JSE: EUZ)
The latest results from the Toral project in Spain are available
I always joke about how drilling announcements are basically impossible to understand unless you are a geologist. Allow me to show you why, courtesy of Europa Metals:
And that, dear Ghosties, is why I skip to the management commentary section to look for clues. A comment like “intersections reported to date have correlated well with the known existing resource” is very helpful.
The company is preparing for the mining licence application, with an environmental report due for completion later this month.
MTN Rwanda and Uganda release results (JSE: MTN)
It’s just a pity that MTN Rwanda didn’t update the website
I wasted 10 minutes looking through the Rwanda Stock Exchange website in desperation, hoping to find the interim results that weren’t on the MTN Rwanda website despite MTN announcing that they were available. Perhaps they will be there by the time you read this.
Thankfully, the team in Uganda seems to know how a website works. Services revenue in the six months to June increased by 15% and EBITDA was up by 16.8%, so EBITDA margin moved in the right direction by 40 basis points to 50.6%.
The interim dividend is 19% higher, as profit after tax only increased by 17.8%. Capital expenditure was flat year-on-year, so that helped keep dividend growth roughly in line with profit growth.
In case you’re wondering what went wrong between EBITDA and profit after tax, the answer lies firmly in the net finance costs line and its whopping 34.3% increase!
Standard Bank is still loving this cycle (JSE: SBK)
If things can stay like this, banking shareholders will be thrilled
The local banking sector finds itself at an interesting point in the cycle. If interest rate hikes stop, as we saw in the pause by the SARB at the last MPC meeting, then banking earnings should be excellent. If they continue, then the impact of impairments should start to offset the benefit of higher net interest margin.
For now at least, the banking party continues. Standard Bank closed 5.7% higher on Friday after releasing a trading statement indicating HEPS growth of between 30% and 35% for the six months ended June.
After the big trades in Novus (JSE: NVS) earlier in the week, we now have confirmation that it was Value Capital Partners selling the last of its stake in the company.
The transaction between Nikkel Trading and Brikor (JSE: BIK) has been approved by the Competition Commission with certain conditions. The announcement doesn’t go into further details, only confirming that the conditions are acceptable to Nikkel Trading.
In a most unfortunate update by Kibo Energy (JSE: KBO), the joint venture that subsidiary Mast Energy Developments is working on has been delayed. This is because the principal at Seira Capital, the lead investor partner, has been involved in an accident and is in hospital in critical condition. The group obviously can’t commit to a completion date based on this.
AB InBev reports a significant drop in HEPS (JSE: ANH)
The difference between HEPS and the company’s normalisation adjustments is substantial
AB InBev has proven something that I already learnt from my dad: people aren’t very price sensitive to beer. Revenue is up by 10% for the first half of the year, although the second quarter growth of 7.2% is clearly a slowdown from the first quarter. This is despite total volumes down by 0.3% for the half, with a decline of 1.4% in the second quarter.
The group reports normalised EBITDA growth of 9.1% for the six months, with margin contracting by 29 basis points to 33%. I can only laugh at the company pointing out that underlying earnings per share “excludes non-underlying items” (very helpful), with this metric increasing from $1.33 in the comparable six months to $1.37 in this interim period.
I’m far more interested in HEPS, which has specific rules about what can be excluded. This tells a completely different picture, dropping from $1.43 in the comparable period to $1.00 in this period.
Net debt to normalised EBITDA increased from 3.5x at December 2022 to 3.7x at the end of June 2023.
I’m not sure that this is such a happy set of numbers, despite the company’s efforts to focus on “underlying EPS” instead of HEPS.
Earnings drop at Mondi but the dividend is higher (JSE: MNP)
Cash is king, clearly
In the six months to June, Mondi reported a drop in revenue of 14% and EBITDA of 28%. Despite this, cash generated from operations managed to increase by 6.7%, which is the only rational explanation for why the dividend is 7.7% higher despite HEPS dropping by 28%.
The balance sheet is still in decent shape at 0.8x net debt to underlying EBITDA, although this has deteriorated from 0.5x at the end of 2022.
Return on capital employed has dropped from 23.7% at the end of 2022 to 19.1%. That’s still a decent return, despite the sharp negative move in the operating environment.
The sale of the Syktyvkar mill is ongoing. The three Russian packaging converting operations were sold for €30 million.
The share price fell by roughly 5% on the day.
Mpact reports strong numbers across the board (JSE: MPT)
These are very impressive numbers in this environment
In the six months ended June, Mpact grew revenue by 8.7%. Thanks to the phenomenon of operating leverage and some solid cost control, this was good enough to drive operating profit growth of a juicy 37%.
Net finance costs were much higher (R131.7 million vs. R81.8 million), so this slightly blunted the growth at HEPS level. Still, HEPS up by 33% shows you that the company is coping with the higher cost of debt.
A further show of faith in the balance sheet is an increase in the interim dividend from 40 cents to 45 cents per share.
A big part of the success in this period is the combination of load curtailment agreements with Eskom and solar generation capacity. The combination means that the company doesn’t need to reduce production at anything up to stage 6, a brilliant competitive advantage in this operating environment. More solar projects are underway at the group.
Looking at the segments, the paper business grew operating profit by 19.8% despite lower volumes. Higher pricing increases led to a 7.2% increase in revenue. In the plastics business, volumes came under pressure in certain products but revenue still improved by 17%. The operating profit performance in plastics is certainly not worth presenting in percentage terms, as it jumped from just R3.5 million to R63.2 million!
Although this was an extremely strong period, there are some headwinds in the paper business from planned downtime at certain facilities in the second half of the year. Still, this is a far better performance than we’ve seen from most companies in the first half of 2023.
Sabvest indicates modest growth in the NAV (JSE: SBP)
The Transaction Capital stake wouldn’t have done it any favours
Sabvest is an investment holding company, so the focus is on net asset value (NAV) per share rather than headline earnings. For the six months ended June, the NAV per share is expected to increase by between 6.4% and 10.5%.
The dividend is flat at 30 cents per share.
The expected NAV per share range is R111.05 to R114.80 and the current share price is R71.10. A discount to NAV is standard practice on the JSE for investment holding companies.
It would make a big difference here if the Transaction Capital stake started to behave itself, as Sabvest has a significant stake in the company.
Sappi suffers an 80% drop in HEPS (JSE: SAP)
The market seemed to expect a worse outcome, with the share price green on the day
Paper and pulp markets are extremely difficult. When customers expect prices to drop, they actively destock (i.e. hold less inventory) in the hope of buying once the price has dropped. This can leave a business like Sappi with a revenue and profit problem, as stock that was produced at a higher price is then difficult to sell. The only response that the company can implement is to save costs and curtail excess production, while focusing on cash generation.
Although selling prices for the quarter ended June above last year’s levels for some of the products, a sharp drop in volumes meant a 27% drop in revenue reported in dollars. This drove a horrible result as you move down the income statement, including a 71% drop in EBITDA and 80% decrease in HEPS.
Over the nine months to June, revenue fell 18% and HEPS declined by 43%. So, the latest quarter was worse than the preceding quarters.
Sappi generated $73 million in net cash for the quarter and invested $62 million in capital expenditure, so free cash flow was barely positive in this period.
Unlike at Mondi, there’s no dividend at all in this period, just like in the comparable period. Instead of cash dividends, Sappi has been executing limited share buybacks. The major focus is on reducing net debt from $1.176 billion to $1 billion.
Looking ahead, the group expects EBITDA in the fourth quarter to be marginally ahead of this quarter.
Shaftesbury sounds bullish post-merger (JSE: SHC)
Property valuations are flat, which isn’t bad in this environment
Shaftesbury is focused on London’s West End, which isn’t exactly the worst place to own a property or two.
As we’ve seen in so many offshore funds, rentals are higher but valuations are under pressure as yields moved out. A number of funds have reported a drop in portfolio value, so a flat performance at Shaftesbury is pretty good actually. Rents grew by 3.3% on a like-for-like basis and the portfolio value was unchanged over the past six months.
The loan-to-value ratio is 31% and the weighted average cost of debt is now up to 4.3% vs. 2.7% pre-merger. This is why so many property funds are taking strain.
The fund is planning to recycle approximately 5% of the portfolio value i.e. sell buildings and acquire new ones.
The interim dividend is 1.5 pence per share.
South Ocean: watch the cash (JSE: SOH)
HEPS might be up but the business is a cash hungry animal
South Ocean Holdings probably isn’t on your radar. The company is primarily involved in the manufacturing of electrical cables, a business model that is very cash intensive in terms of working capital.
The numbers for the six months to June prove it. Revenue increased by 26.4% and operating profit jumped by over 40%, with HEPS up by 51.3%. Before you reach for the “buy” button in celebration, you may want to look at the cash flow statement and balance sheet.
There seems to be some seasonality in the business, as the prior interim period was also cash flow negative at operating level and came right by the end of the year. As revenue has ramped up, so too has the negative cash flow, now at R201.6 million cash outflow from operations vs. an outflow of R120 million in the prior period.
The inventory balance has jumped from R249 million to R437 million. The overdraft is up from R32 million to R135 million. I wish the management team gave more commentary to work with, as it’s quite possible that the business has simply geared up for a very strong second half.
Wesizwe’s Bakubung Platinum Mine is still closed (JSE: WEZ)
The very last thing anyone needs to see is mining strikes
Due to an unprotected strike, Wesizwe Platinum’s Bakubung Platinum Mine has been closed since 20 July. Management is “working tirelessly” to find a solution, but there’s no indication of a speedy resolution on the horizon.
With PGM prices under pressure and mining inflation under pressure, no mining group can afford a drop in production because of strikes.
Little Bites:
Director dealings:
The credit executive at Capitec (JSE: CPI) is still selling shares, this time to the value of R2.4 million.
A director of Adcorp (JSE: ADR) has bought shares worth R251k.
A director of Lewis (JSE: LEW) has sold shares worth over R660k.
You won’t often see a “change statement” on the JSE. This happens when finalised results are different to provisional results. At Copper360 (JSE: CPR), HEPS for the year ended February was originally reported as a loss of 37.6 cents. This has increased significantly to a loss of 53.1 cents, with various differences ranging from accounting treatment of loans through to inventory adjustments. Although IFRS accounting rules are very complicated and these things happen, it’s not a great start to life as a listed company.
Omnia (JSE: OMN) has noted that GCR Ratings has upgraded the long-term credit rating to A+(ZA) and affirmed the short-term rating at A1(ZA). This is good news for the company and its borrowing costs, but should never be interpreted by equity investors as being an opinion on the share price. Credit rating agencies are only giving a view on the balance sheet and cash flows from an affordability perspective, not an equity growth perspective.
RMB Holdings (JSE: RMH) has reached an agreement with dissenting shareholders (the s164 Companies Act process that has had a lot of recent attention). Provided the correct court process is followed, shareholders can demand to be paid out fair value where there is a scheme of arrangement. With so many JSE-listed groups trading below fair value, these are becoming more common. Shareholders of 0.944% of the company’s shares followed this process and will be paid out 197.76 cents a share, which is way more than the current share price of 47 cents.
If you are close to the enX Group (JSE: ENX) mandatory offer process, then you may want to read Thursday’s announcement with some additional disclosure around director interests in the entities related to the mandatory offer.
Argent Industrial’s (JSE: ART) CFO has retired and has been replaced by an internal candidate. It’s always good to see a solid succession plan play out.
With plenty of legal heat suddenly on Pheladi Gwangwa, she has resigned from the board of Clientele (JSE: CLI). That’s the right move under the circumstances.
Aspen Pharmacare, via its subsidiary Aspen Global Incorporated (AGI), is to acquire the commercialisation rights and related intellectual property for a portfolio of branded products in Latin America. Acquired from NASDAQ-listed Viatris, the key products are sold under the brand names Lipitor, Viagra, Lyrica, Zoloft, Norvasc and Celebrex. The fair value of the products has been determined by AGI as $280 million (R5 billion). AGI will settle the consideration by means of a combination of a cash payment of $150 million and an extension of the supply terms to Viatris.
Prosus has announced that PayU has reached an agreement with Rapyd, a leading Fintech-as-a-Service provider, whereby Rapyd will acquire PayU’s Global Payments Organisation (GPO) for a total cash consideration of US$610 million (R11,2 billion). GPO operates in some 30 countries across Asia, Latin America, Europe and Africa but the deal excludes India, the biggest payments market, as well as its units in Turkey and Indonesia. The transaction will enable PayU to focus on the large payments and fintech opportunity in India, where it is the leading payments provider. For Rapyd the transaction will allow it to significantly scale and market its presence in Central and Eastern Europe and Latin America, while also gaining access to relevant underlying licenses and payment processing infrastructure.
Glencore is to acquire the remaining 56.25% stake in Minera Agua Rica Alumbrera (MARA) Project from Canadian miner Pan American Silver – a stake it inherited when it acquired Yamana Gold earlier this year. Under the terms of the agreement Glencore will pay $475 million (R8,4 billion) in cash for the stake and grant Pan American a copper Net Smelter Return royalty of 0.75%. Glencore acquired Newmont’s 18.75% stake in MARA in October 2022, increasing its stake to 43.75%. The transaction is expected to be completed in Q3 2023.
Delta Property Fund has advised that it has cancelled the agreement with DMFT Property Developers relating to the Capital Towers disposal announced in December 2022. The reason given is that DMFT has failed to deliver the requisite bank guarantee or balance of the cash consideration required to transfer the leasehold property. Not surprising then that the agreement announced in April in respect of the sale to DMFT of Delta’s four regional properties has also been terminated.
Unlisted Companies
Local alternative investment manager, Westbrooke Alternative Asset Management, has closed its inaugural R300 million tax-enhanced renewable energy alternatives fund, Westbrooke REAL. The fund will offer fast, innovative and flexible equity funding to solar partners to expedite project rollouts.
Black women-owned and managed Ditiro Capital, a South African private equity fund manager, has reached its first close securing R360 million in investment commitments from Thuso Partners, the Motor Industry Retirement Funds and the Telkom Retirement Fund. Ditro is targeting capital commitments of between R500 million and R800 million.
As part of its capital optimisation strategy, Investec Ltd acquired on the open market a further 119,387 Investec Plc shares at an average price of R109.86 per share.
Gemfields has repurchased 1 million of its own ordinary shares at a price of R3.45 per share. Following the repurchase, the company will hold 2,729,550 shares in treasury.
RMB Holdings has repurchased 13,270,019 shares from shareholders representing 0.944% of the company’s issued share capital. The shares, which were repurchased in terms of section 164 of the Companies Act, were repurchased at a s164 fair value offer price of 197.76 cents.
Prosus and Naspers continued with their open-ended share repurchase programmes. During the period 24 – 28 July 2023, a further 2,308,036 Prosus shares were repurchased for an aggregate €155,3 million and a further 427,172 Naspers shares for a total consideration of R1,42 billion.
During the period 17 – 26 July 2023, as part of Investec Ltd’s share repurchase programme, the company repurchased 360,468 shares at an average price per share of R109.81. Since November 21 ,2022, the company has repurchased 13,4 million shares at a cost of R1,43 billion.
The JSE has flagged Salungano Group for failure to submit its annual report within the four-month period as stipulated in the JSE’s Listing Requirements. The company’s listing on the JSE trading system has been annotated with a ‘RE’ and may be suspended if it fails to submit its annual report on or before 31 August 2023.
Royal Bafokeng Platinum (RBPlat) shares were suspended from trading on the JSE on 2 August 2023, following the acquisition of RBPlats by Impala Platinum via a scheme of arrangement. The shares will be delisted from the JSE on 18 September 2023.
The Board of Investec Property Fund (IPF) will seek shareholder approval on 31 August to change the company’s name to Burstone Group. This follows the internalisation of the South African and European asset management functions of IPF.
Five companies issued profit warnings this week: African Dawn Capital, AngloGold Ashanti, Workforce, Gold Fields and Sabvest.
Four companies issued or withdrew a cautionary notice: Clientèle, Chrometco, Ellies and Astoria Investments.
Prembly, a Nigerian compliance and security infrastructure company, has acquired Tunnel, a data infrastructure and analytics company. The deal enhances Prembly’s suite of security solutions and expands its financial services capabilities in emerging markets, providing reliable identity verification through the integration of comprehensive financial data. Financial details were undisclosed.
Wilmar International, an agribusiness head-quartered in Singapore, has entered into an agreement with several Moroccan investors to dispose of its entire 30.5% equity stake in Cosumar S.A. Cosumar’s principal business is the production of sugar through the processing of sugar cane and sugar beet in Morocco. The cash consideration for the sale is c.US$605 million. In the same agreement, Wilmar will acquire from Cosumar, its 45% equity stake in Wilmaco for c.$8,7 million. Wilmaco produces, develops, processes, imports, exports and markets vegetable fats and their by-products.
888Africa, a joint venture between 888Holdings and a digital leadership group, has acquired Nairobi-based BetLion. The gaming operator which holds licences in Kenya, Zambia and the DRC was acquired for an undisclosed sum.
E-health startup, Nigerian Remedial Health, has secured US$12 million in equity and debt funding. The $8 million equity funding was raised from venture capital firms QED Investors and Ventures Platform. The $4 million debt funding was led by a consortium of local and international financial institutions. Remedial Health, which develops tech-enabled solutions to make Africa’s pharmaceutical sector more efficient, will use the funding to deepen the reach of its services across Nigeria and further develop solutions to drive greater efficiency across the pharmaceutical value chain.
Nigerian fintech Traction has raised US$6 million in a seed round from investors Multiply Partners, Ventures Platform, P1 Ventures and others. The funds will be used to accelerate its growth in Nigeria, strengthen the team and drive its expansion outside Nigeria.
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