Zeder Investments will distribute to shareholders a special dividend of 5 cents per share from income reserves. The company has 1,54 billion shares in issue and will distribute, on 28 August 2023, R77 million to shareholders in terms of the special dividend declaration.
The result of the odd-lot offer by CA Sales to shareholders holding less than 100 CA Sales shares, was announced with the company repurchasing a total of 100,025 CA&S ordinary shares representing 0.02% of the total issued shares of the company. The shares were repurchased for a total consideration of R706,283 and the number of shareholders was reduced by c. 35%. The shares will be delisted and the total issued ordinary share capital of the company will be reduced to 474,870,057 with no treasury shares.
Invicta which has odd-lot holdings equal to 36,349 shares has announced an odd-lot offer price of R29,82 per share. The offer is set to close on August 4, 2023.
Prosus and Naspers continued with their open-ended share repurchase programmes. During the period 17-21 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.
Three companies issued profit warnings this week: Aveng, Ellies and Royal Bafokeng Platinum.
Five companies issued or withdrew a cautionary notice: Trematon Capital Investments, Afristrat Investment, Ellies, enX and Trustco.
Meridiam has acquired 100% of Rift Valley Energy Tanzania for an undisclosed sum. This is the company’s first acquisition in Tanzania. Rift Valley Energy owns a portfolio of 30MW of renewable energy generation assets in operation, construction and development stages.
Acumen Resilient Agriculture Fund has led a US$4,1 million pre-Series A funding round in Kenya’s FarmWorks. Other investors include Livelihood Impact Fund, Vested World, a number of family offices and some angel investors. The funding will be used to strengthen its data analytics capabilities and brings the total raised by the company since it started in 2020, to $5,6 million.
Nigerian data and marketing technology company, Terragon announced a US$9 million Series B round. Orange Ventures led the round with participation from TLcom Capital, LoftyInc, Sango Capital, VestedWorld and Western Technology Investment.
South Africa’s gender-lens venture capital firm, Five35 Ventures, has invested an undisclosed sum in Zuri Health. This is the second investment this year for the Kenyan e-health platform – Morocco’s UM6P announced it was backing Zuri in January.
Clafiya, a Nigerian healthtech startup, has raised US$610,000 in a pre-seed round. Norrsken Accelerator, Acquired Wisdom Fund, Hustle Fund, Voltron Capital, Microtraction, Ajim Capital, HoaQ, Bold Angel Fund, the Shivdasani Family and other angel investors participated in the oversubscribed round. Funds will be utilised to accelerate growth, product development and new staff hires.
East Africa’s Kasha Global has raised US$21 million in a Series B round led by Knife Capital. Other participants in the round included Finnfund, DFC, Tim Koogle, Beyond Capital ventures, Altree Capital, BLOC Smart Africa Fund and Five35 Ventures.
Kavango Resources has signed an exclusive six-month option agreement to acquire two gold exploration projects in Matabeleland, Zimbabwe. The Leopard Project and Hillside Project will expand Kavango’s existing footprint in the country. Both projects contain historically producing mines.
Whether you love him or hate him, you can’t deny the irony in the fact that DJ Khalid’s 7th studio album, titled Suffering from Success, was met with lacklustre reviews after it was released almost a decade ago.
What should have been a winning recipe, including guest appearances by big names like Nicki Minaj, Drake and Lil Wayne and collaborations with producers like Timbaland, ended up giving a so-so performance on the charts and was panned by the majority of critics.
As it turns out, 7 was not DJ Khalid’s lucky number after all. Sometimes, success is elusive, even when it seems so guaranteed that you (pre-emptively) name your whole album after it.
Perhaps it wasn’t time for Another One? If DJ Khalid references are lost on you, then don’t despair. We are moving on now.
Products and services that seem destined for triumph may do exactly the opposite. In our Magic Markets research, we often encounter businesses that appear to have all the right ingredients, but end up falling flat (or more annoyingly, sideways).
And then sometimes, we find the bright side – a business that spots a gap in the market, addresses it with a great solution and nails the pricing. Sometimes, it just works, and as business enthusiasts, we love to see it.
Although luck undoubtedly plays a role in this, we’ve learnt enough over the years to know that there are certain markers – green flags, if you will – that go a long way towards predicting a good outcome for shareholders.
Here are two examples from our research:
Green flag #1: A coherent ecosystem
Earlier this year, we delved into MercadoLibre, a South American eCommerce platform that looks and sounds as exciting as a Mexican wrestling match.
Operating in a high growth region with a business model that clearly works, MercadoLibre is a bit of a unicorn: a technology-driven firm that not only makes great profits, but manages to spend those profits wisely.
The appeal of MercadoLibre lies in its seamless integration of growth engines that complement its eCommerce platform. This end-to-end approach reflects a deep understanding of the consumer journey, where every pain point is addressed with a tailored solution. Unlike some conglomerates that attempt to incorporate unrelated services under one umbrella (looking at you, Amazon), MercadoLibre’s cohesive ecosystem offers a strategic advantage that makes it stand out in the market.
By providing solutions for transactions, money transfers, credit services (Mercado Credito), and insurance, they create a comprehensive and convenient environment for users. This all-inclusive approach not only enhances customer satisfaction but also strengthens customer loyalty, as users find all their needs met within a single platform.
What does that look like in practice? Well, see for yourself:
Green flag #2: An understanding of the consumer base
More recently, we looked at Lovesac, the luxury furniture business that claims to be the bestselling couch in America. That’s a big statement to make, but after looking at the numbers, we wouldn’t be surprised if they were correct about that.
Lovesac has doubled both revenue and net income between 2021 and 2023. It’s the fast-growing furniture business most punters have never heard of, let alone looked at from a numbers perspective.
Lovesac’s exceptional ability to cater to the needs of its Millennial consumer base is rooted in a deep understanding of their preferences and lifestyle choices. By recognising the transitional phase that many Millennials find themselves in as they move to new homes and seek high-quality furnishings, Lovesac has strategically positioned itself as a brand that offers both comfort and aspirational value.
Unlike traditional luxury brands that may focus solely on exclusivity and prestige, Lovesac recognizes that its Millennial target audience values practicality. They understand that Millennials work hard for their money and expect products that can withstand the rigours of day-to-day life.
By catering to families with pets and small children, Lovesac ensures that its furniture meets the demands of real-life usage while maintaining its premium image.
Lovesac’s distribution model is perfect for today’s consumer. It’s been built as an omnichannel business from the start, with boutique showrooms and a solid online capability to back it up. By avoiding large expensive showrooms, the trading density (sales per square metre) metrics are fantastic.
The five-year story is nowhere near as exciting as the MercadoLibre performance, but a furniture manufacturer faced a different reality during lockdowns to a technology platform. We think that Lovesac is one to keep an eye on.
Spot successes in the making with our help
Nobody likes betting on a flop. That’s why it’s cardinally important that you research companies before you invest in them.
With nearly 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. And if you don’t feel confident enough to spot those green flags yourself just yet, we will help point them out for you. Perhaps most importantly, we also point out as many red flags as possible.
Advanced Health releases the delisting circular (JSE: AVL)
The proposal is to take the company private at 80 cents per share
After a firm intention announcement was released back in June, Advanced Health has now released the circular for the offer being made by Eenhede Konsultante. There are certain shareholders who are moving into the private space with the offeror, with a collective existing holding of 71.13% in the company. In other words, the scheme will be voted on by shareholders who have 28.87% of the company.
The offer price is more than double the 30-day VWAP before the date of the firm intention announcement. A big premium like this is rare, though it becomes necessary when there is a small voting class.
Based on the opinion from BDO, the Independent Board has determined that the scheme is fair and reasonable to shareholders.
Kudos to the corporate advisors Questco for putting together such a fresh looking scheme document. Circulars are normally very ugly things, but this circular looks fantastic.
AECI: earnings up and dividend down (JSE: AFE)
There’s too much debt at this point in the cycle, so the banks are first in line for cashflow
In the six months ended June 2023, AECI posted a solid set of numbers until you get below the EBIT (Earnings Before Interest and Taxes) line. Let’s start at the top.
Revenue increased by 19%, which is a solid start to any story. Operating margins also look good, with EBIT up by 20% despite a R180 million loss in the problematic Schirm Germany business. This is significantly worse than the loss of R86 million in the prior period. A turnaround strategy is underway in Germany.
EBITDA and EBIT margins were stable at 10% and 7% respectively. This brings us to the end of the good news.
HEPS has only increased by 5%, a direct result of net finance costs increasing from R124 million to R274 million. This is because net debt is up to R5.7 billion, which is pretty chunky vs. interim EBITDA of R1.8 billion. You would need to annualise that number to work out a net debt to EBITDA ratio. The company indicates net debt to EBITDA of 1.6x.
The company acknowledges that gearing is too high at this point in the cycle. Reducing this is a priority, helped by a solid working capital performance that saw cash from operations increase by 20%, ahead of EBITDA growth of 18%.
The clear need to focus on the debt is why the dividend is 48% lower at 100 cents per share.
Altron: a creative use of “once-offs” (JSE: AEL)
The slide in the share price continues
Altron’s recent financial reporting has highlighted some incredibly dubious “once-offs” – theoretically, unusual items that shouldn’t happen again. A problem in the core business that is a clear business risk is not a once-off.
For example, Altron Nexus (now a discontinued operation) engages in public sector work. We know that this is risky stuff, so the fact that the contract for phase 3 of the Gauteng Broadband Network (GBN) contract wasn’t awarded to the business despite having personnel and infrastructure in place from phases 1 and 2 isn’t a once-off. It’s a business risk of a contract not being awarded or renewed!
As another example, the heavily debt burdened City of Tshwane owes money to Thobela Telecoms. Altron Nexus is the EPC contractor to Thobela and won’t get paid unless Thobela gets paid. Again, the government not paying people isn’t a once-off.
Altron Nexus just keeps taking bullets, as there is also litigation underway by Aeonova (a sub-contractor on the GBN contract). It initially looked like the possibility of an arbitration award was remote, but subsequent proceedings have led to a revised view. No provision has been raised as of yet for this matter, so this issue may still be coming in the numbers.
Total provisions for R336 million have been raised for Altron Nexus, which is held as a discontinued operation. Cash restructuring costs of R11 million have also been incurred. There’s a further goodwill impairment of R33 million.
But wait folks, there’s more.
After the failed disposal of Altron Document Solutions, new management was appointed to restructure the business. With two of its large customers facing financial difficulties, provisions of R95 million have been raised against this asset which is also recognised as a discontinued operation.
Together, Altron Nexus and Altron Document Solutions contributed 21% to group revenue in the year ended February. They were loss-making, so no profit will be lost here once they are out of the system.
The continuing operations are Netstar and Altron Systems Integration, with the update giving a more positive outlook on their profitability.
For the six months ending August 2023, Altron expects to generate HEPS from continuing operations of between 43 cents and 51 cents, representing an increase of between 5% and 24%. They really need to sort out the troublesome businesses though, as the headline loss per share from total operations will be between -64 cents and -57 cents, an ugly swing from headline earnings per share of 34 cents in the comparable period.
I could only laugh at this comment in the announcement. If management intervention is required to ensure that “once-offs” do not recur, then they weren’t once-offs in the first place!
AVI managed to push through selling price increases (JSE: AVI)
Even I&J increased revenue – but only just!
For the year ended June 2023, AVI managed to increase revenue by 7.8%. The star of the show was Snackworks, with growth of 11.9% and a contribution of 35% to revenue. As we’ve seen in PepsiCo on the global stage, people are willing to cut their food cost but not when it comes to their favourite snacks!
Footwear & Apparel also did well with a 12.3% increase, though it is the second-smallest segment in the group. The laggard was I&J, up just 0.5% and contributing 16.7% to group revenue. There were various reasons for this, including a fire at one of the I&J facilities.
The overall revenue increase was attributed to selling price increases. Gross profit margin improved slightly, which I think is very impressive in this environment. The revenue mix is a factor here, with higher margin categories doing well in this period.
A less ideal situation is that selling and administrative expenses increased at a rate above inflation, with fuel prices as the major culprit. There were other costs pressures as well.
So, despite revenue growing 7.8%, operating profit was only 6.9% higher. I&J’s earnings were lower because of the sideways performance in revenue. Every other segment experienced positive earnings growth.
Cash conversion sounds promising, with the company noting a decrease in working capital. Net debt is within target range, despite an increase in capital expenditure vs. the prior year as the group caught up on projects that had been delayed during Covid.
As there are more shares in issue than before because of incentive schemes, consolidated HEPS will only increase by between 3% and 5%. AVI is a remarkably defensive business but the share price has been the victim of a valuation that was simply too high.
British American Tobacco is crawling along (JSE: BTI)
Low single-digit growth remains the order of the day
I don’t really understand the appeal of British American Tobacco to investors. I get the arguments around being a rand hedge, as well as the high dividend yield, but that doesn’t make it a great investment. There’s an argument around how defensive the model is, yet I’m quite sure that pharmaceuticals and perhaps alcohol businesses will offer more defensive characteristics in years to come, especially as the British American Tobacco business transitions into “non-combustibles” with unproven profitability.
Interestingly, neither British American Tobacco nor AB InBev have done well over 5 years, though the cigarettes offer a much higher dividend than the beers:
In the six months to June 2023, British American Tobacco achieved revenue growth of 4.4% (or 2.6% in constant currency). New Categories grew by 26.6% and is now 16.6% of group revenue, yet still isn’t profitable.
Reported profit is up substantially because of major once-offs in the base. Adjusted profit is up 3.6% in constant currency, with margin up 40 basis points to 44.3%.
Adjusted net debt has decreased by 2.3% to £37 billion. Yes, billion. This group is an absolute monster, with a market cap of R1.47 trillion. Yes, trillion.
The company is currently paying a quarterly dividend of 57.72 pence per share. That’s roughly R13 per quarter, or R52 a year off a share price of R612.
Are lab-grown diamonds starting to hurt De Beers? (JSE: AGL)
The company is blaming macroeconomic challenges for a slowdown in sales
Luxury groups like Richemont and more recently LVMH have flagged a slowdown in US sales, although Asia seems to be doing just fine. Diamonds are a bit different to these luxury products in my view, as social pressures means that most married couples have bought a diamond at some point even though they can’t possibly afford a Richemont or LVMH product.
This makes diamonds more vulnerable to economic slowdowns than true luxury brands. If that’s the real reason for the drop in sales value at De Beers (part of Anglo American), then so be it. There’s another potential reason though: lab-grown diamonds. I can’t find a reliable estimate of lab-grown diamond market share, but it isn’t insignificant and it is definitely growing quickly.
I suspect that it will be a long time until De Beers publicly acknowledges this issue in a sales value update. With Cycle 6 sales of just $410 million vs. $456 million in Cycle 5 and $638 million in Cycle 6 of 2022, can we really attribute the drop purely to macroeconomic conditions?
Labat is making progress, but is paying big multiples (JSE: LAB)
Acquisitions and store rollouts are underway
Labat Healthcare (the cannabis business) seems to be making progress.
On the acquisition front, the company will acquire the remaining 30% in CannAfrica for a price of R6.4 million, partly settled through the issuance of Labat shares at R0.12 per share. That’s higher than the current price of R0.07 per share. There’s also a cash payment of R2.8 million.
CannAfrica’s profit before tax for the year ended May 2023 was R672k and the net asset value was -R2.4 million. Ignoring the negative net asset value, that’s a gigantic valuation. If we scale up that price to a 100% stake, it implies a value of over R21.3 million or a Price/Earnings multiple of 31.7x! I can see why shares are being issued at a premium to the current price to pay for it.
Importantly, the rollout of Labat Healthcare stores seems to be going rather well. There were 10 franchised stores and four owned stores in the recent financial period, with two of the owned stores sold to franchisees after the end of the period. It’s a good sign that people are willing to buy the stores, as this suggests that the economics are decent.
There’s a long list of identified locations for further store rollouts. That’s meaningless until the stores actually exist.
Naspers wants to make sure that shareholders have seen this notice. In fact, they’ve published the full notice in Ghost Mail here.
The other thing you need to read (including if you are a Prosus shareholder) is the actual circular, which you’ll find at this link.
Although the Naspers – Prosus structure is still complicated and has no shortage of critics, this is at least a step in the right direction:
A brief update from RAC (JSE: RACP)
The owner of Goldrush has given an update at the AGM on trading conditions
In an update from RECM and Calibre (RAC), we learn that alternative gaming business Goldrush has seen its trade “recover somewhat” during the first four months of the new financial year. The issue here has been load shedding. You can’t play electronic bingo without electricity, unfortunately.
With power generation shortcomings resolved, the bingo and limited payout machine (LPM) divisions have generated revenue in line with the prior year. The retail sports betting and online divisions are up year-on-year, taking group level results into the green for this period on both a sales and profit basis.
Little Bites:
Shareholders of Steinhoff (JSE: SNH) have resolved to dissolve the company. I have no idea why the share price recently more than tripled from 4 cents a share to 13 cents a share. It’s back down to 7 cents.
Suspended company Efora Energy (JSE: EEL) is way behind on its financial reporting. The external auditor is reviewing the 2022 interim and annual results, with a plan to finish this process by the end of August.
4Sight Holdings (JSE: 4SI) is changing its financial year-end from 31 December to 28 February. This means that annual results for the next period will be for a 14-month period.
Distribution of Notice of the virtual Annual General Meeting and Circular
Improving everyday life for people through technology
Naspers shareholders are advised that notice is hereby given, in terms of the notice of annual general meeting posted to Shareholders today (Wednesday, 26 July 2023) that the virtual annual general meeting of Naspers will be held at 14:00 SAST on Thursday, 24 August 2023, entirely by electronic communication as permitted by the Companies Act 71 of 2008, and by Naspers’ memorandum of incorporation.
These economic conditions make revenue growth almost impossible
In the latest quarterly update from Cashbuild, the company shows us that the pain continues in this sector. South Africans are dealing with huge economic pressures and high interest rates, which is hardly the right environment to justify major renovation projects. Long gone are the heady days of the pandemic, with low interest rates and South Africans investing in their homes.
This quarter was the final quarter in the 2023 financial year, so we now know that full-year revenue fell by 4% for the period ended June. If we exclude the stores looted in 2022, it’s even worse with a 7% reduction.
Perhaps the only silver lining here is that the sales performance in Q4 was flat, with -2% in existing growth and 2% in new store growth. That’s a lot better than Q3, where sales fell 9% after existing stores tanked by 10%.
Although a relatively small contributor, P&L Hardware fell 6% in this quarter after an awful drop of 15% in Q3, taking the full-year decrease to 10%. It contributes 16% of the store footprint and even less than that in revenue, as a Cashbuild store is much bigger than a hardware store.
Ellies goes from bad to worse (JSE: ELI)
The core business is in serious trouble
For the year ended April 2023, Ellies expects to report a headline loss per share of between 10.02 and 11.62 cents. That’s a lot worse than the headline loss of 7.13 cents per share in the comparable period. For context, the Ellies share price is only 7 cents!
A restructure and retrenchment process contributed 2.24 cents of the loss in this period. This means that earnings still deteriorated year-on-year in the core business, even if we take this into account.
One of the major business lines is satellite installations. With the shift to streaming, I don’t need to tell you how badly that is going. In the parts of the business that do have decent demand, like solar and surge protectors, working capital was a problem and so there were stock shortages. Disaster.
To help address this, there’s a new line of funding with the banks. That helps, but throwing debt into Ellies is literally pouring petrol on a fire.
The acquisition of Bundu Power is about the only thing that shareholders can get excited about. This solar business grew revenue by 60% this year and saw profits after tax jump from R11.2 million to R32.4 million. To pay for the acquisition, Ellies needs to raise R120 million through a rights issue at 7 cents per share. With a market cap of just R56 million, existing shareholders will be heavily diluted.
Ellies truly is the small cap that keeps breaking hearts:
Kumba is down year-on-year, but still very profitable (JSE: KIO)
Return on capital employed of 77% is incredibly juicy
We may be off the highs of 2022, but the mining cycle is still firmly in favour of the companies in this sector. With an EBITDA margin of 52% and production increases of 6% in the six months to June 2023, Kumba’s diluted HEPS has come in at R29.98 and the dividend is R22.60, so most of the profits are going to shareholders.
Diluted HEPS is down 17% year-on-year, as revenue fell by 11% and costs came under pressure particularly at Sishen (cash costs up 13%). It did help that Kolomela experienced a 6% drop in cash costs per metric tonne.
Rail performance remains a major worry. It was the driver of sales dropping 4% in the first half, with a particularly rough 8% decrease in the second quarter.
The market outlook is all about China, where low inventory levels and economic stimulus measures are helping. Although Kumba can’t do much about Transnet, a drop in capital expenditure guidance from R11 – R12 billion to R9 – R10 billion will give free cash flow a boost.
MC Mining gets an IDC extension (JSE: MCZ)
But not by much…
MC Mining’s IDC loan of R160 million plus interest was due on 30 June 2023. That date has clearly come and gone, with an extension granted to 30 September 2023. That’s only a few weeks away, let’s face it.
The company is busy with fund raising initiatives for the Makhado Project, which are expected to be concluded in the second half of the year. The clock is ticking.
Mpact reports a big year-on-year jump in HEPS (JSE: MPT)
Most of the improvement in profitability is in the plastics business
In its continuing operations, Mpact grew HEPS by between 30.3% and 37.3% for the six months to June. Revenue only increased by 9%, so this is very much a story around profitability rather than high levels of growth.
Strategic initiatives in the plastics business helped drive improved profitability, like the investment in bins and crates. Higher selling prices in paper didn’t hurt either, with April 2022 floods in the KZN in the base period also playing a role.
Investors need to keep an eye on the balance sheet, as net debt increased by R313 million to R2.64 billion after investing R843 million in capital projects. Mpact is investing in South Africa which is great, provided return on capital will be sufficient.
The discontinued operation is the plastic trays and films business, Versapak. Discussions with potential buyers are currently underway. It helps that revenue increased from R510 million to R545 million and net earnings grew from R28 million to R34 million. Mpact is simplifying a potential deal by excluding most of the working capital from the sale (receivables / cash / payables), so the net asset held-for-sale has decreased from R337 million to R173 million.
If we include Versapak and look at total operations, HEPS increased by between 27.1% and 36.4%.
Despite such strong growth, the share price closed 1.6% lower on the day. Being a JSE-listed mid-cap is an extreme sport.
Orion moves closer to trial mining (JSE: ORN)
This is one of those junior mining announcements that requires a geology degree
Looking through all the technical stuff, this Orion Minerals announcement is all about moving closer to getting the Prieska copper-zinc mine to the point of trial mining. The mineral resource estimate has been updated and management sounds happy with the results and how this creates an attractive early mining opportunity.
The company is in negotiations with metallurgical processing and engineering groups regarding processing facilities under “Build-Own-Operate-Transfer” arrangements. Google tells me that this is a method used to finance large projects that is usually used by governments in public-private partnerships. In this case, I guess Orion is the “government” looking to bring someone in for a defined period of time.
The trial mining phase is fully funded by the IDC and Triple Flag facilities. Orion has already executed its first draw-down of R167 million, with a total availability facility of R370 million.
Reinet’s net asset value fell slightly this quarter (JSE: RNI)
Rupert’s “stay rich” investment vehicle is not trending in the right direction
Reinet is quick to remind the market that since March 2009, the compound growth rate (including dividends) is 8.6% measured in euros. That’s all good and well, but British American Tobacco as one of the key underlying assets is one that I just can’t get my head around.
You see, if you want something truly defensive, why not look internationally to businesses like PepsiCo or Johnson & Johnson? Locally, I would prefer to have AB InBev in my portfolio over the next five years than British American Tobacco. I barely know anyone who smokes. I know a lot of people who drink. Reinet is stuck with the stake, but you certainly aren’t.
Either way, the net asset value of Reinet dropped by 1.3% in the past three months. Compared to a year ago, it’s down just over 1%. In both cases, this is in euros.
Dividends of €57 million were received from Pension Insurance Corporation (the biggest asset in the portfolio) and commitments to new investments worth €38 million were made in this quarter. The other assets are generally private equity funds focused on regions like Asia.
Here’s how Johann Rupert chooses to stay wealthy, with most of the fun stuff happening in Remgro instead:
Sasol’s FY23 production is generally lower (JSE: SOL)
In several cases, the guidance had prepared the market for a year-on-year decline
As a precursor to the release of financial results, Sasol announces a detailed set of production and sales figures. This deals with the year ended June 2023.
In the mining business, export sales fell 13%. You guessed it! Transnet. Thankfully, most of the coal gets used internally at Sasol, so the focus is actually on production numbers which fell 3%.
In the gas business, the Mozambique operations achieved production at the upper end of the market guidance, which means a 2% year-on-year increase.
In fuels, the Secunda Operations production was 1% higher year-on-year and the run-rate at Natref was within market guidance, although 9% lower than FY22. Liquid fuels sales volumes fell by 2% vs. FY22.
In chemicals, external sales volumes fell by 4% and revenue was down 15%, as the basket price fell by 12%. There have been a number of issues here, with Transnet featuring strongly once more. In the American business specifically, far away from Transnet, revenue fell 8% despite a 9% increase in sales volumes, as market prices were lower than in the prior year. The business in Eurasia saw volumes drop by 19%, adjusting for the disposal of the European Wax business.
Group level revenue has fallen by 15% in US dollars.
Shoprite is smashing its competitors (JSE: SHP)
The Shoprite vs. Pick n Pay gap is just widening
Let’s start with a 5-year share price chart:
Shoprite’s 20% return over 5 years is nothing to get excited about. The pandemic was tough. Pick n Pay’s performance is really frightening though, especially as a stock that investors put in a “defensive” bucket.
The share price chart is a reflection of the difference in performance. In the 52 weeks to July, Shoprite grew group sales by a lovely 16.9%. Now, before you point out that the recent Pick n Pay update with lethargic growth only covered the last few months, I must note that Shoprite’s H2 growth (26 weeks to 2 July) was 17%. In other words, the halves were equally impressive.
The superstar is Supermarkets RSA, with 18.2% growth. Supermarkets non-RSA could only manage 15.2% and Furniture is up just 1%. In other words, Shoprite is literally ripping away market share from competitors in the grocery business, especially from Pick n Pay.
The grocery performance is strong across the LSM curve. Checkers and Checkers Hyper grew 18% and Shoprite and Usave grew 15.6%. These are astonishingly good numbers.
Of course, the sales performance is only part of it. The group has flagged a decrease in gross margin vs. the prior year (24.5%). The decline is expected to be less than the decline that was reported in the interim results (64 basis points).
Another important point is that Shoprite incurred R1.3 billion in diesel costs in this financial year. That’s a very big number, as headline earnings in the prior financial year came in at R5.9 billion and diesel costs weren’t significant in that period.
The net profit growth will be blunted by Eskom and pricing pressure. The shift in market share is clear though. I’m very happy to not be a Pick n Pay shareholder.
Little Bites:
Director dealings:
An associate of a non-executive director of Crookes Brothers (JSE: CKS) bought shares worth R267k.
The finance director of EOH (JSE: EOH), Megan Pydigadu, is on her way to a new adventure. She will leave the company on 31 October 2023 and the announcement hasn’t indicated her next move. A replacement hasn’t been announced as of yet.
Zeder (JSE: ZED) has declared a small special dividend of 5 cents per share. The share price is R1.74 and the announcement doesn’t give an explanation of the source of these funds or how this ties into the broader value unlock strategy at the company.
Invicta (JSE: IVT) has confirmed that the odd-lot offer price is R29.8298446 per share. This is a 5% premium to the 30-day VWAP. The current share price is R27.99 so the “arbitrage” here based on 99 shares is R184. Try not to spend it all at once.
enX Group (JSE: ENX) renewed the cautionary announcement related to the potential sale of Eqstra Investment Holdings.
Europa Metals (JSE: EUZ) has drawn down €137k from the Spanish Government’s Centre for the Development of Industrial Technology (CDTI), taking the total loan to €460k.
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In the 22nd edition of Unlock the Stock, Capital Appreciation and Spear REIT returned to the platform to update investors on recent performance and the way forward.
As usual, I co-hosted the event with Mark Tobin of Coffee Microcaps and the team from Keyter Rech Investor Solutions. Watch the recording here:
Tin pricing moved against the company in the past quarter
In Alphamin’s quarterly update, the company compares the numbers for the three months ended June against the three months ended March i.e. a quarter-on-quarter basis. That’s different to most companies that take the year-on-year approach. In reality, most entrepreneurial management teams are more worried about cadence (this approach) than the year-on-year approach that we find in financial markets.
The company processed 3% more ore but the grade deteriorated, so tin production was actually 1% lower. Sales were 3% lower and the average tin price was also 3% lower, so the combination was a nasty 14% decrease in EBITDA. This is despite all-in sustaining cost being flat for the quarter (i.e. similar to the preceding quarter).
Tin prices have moved higher since the end of the quarter, which bodes well for the next set of numbers. Another important point is that delayed sales should also clear during the next quarter.
Development at Mpama South is ongoing, with no issues noted and an expectation for the project to be completed within budget. That’s always an encouraging sign!
Alphamin’s cash on hand is $41.4 million and an interim dividend of $29 million has been declared. This works out to 40.3707 ZAR cents per share.
85% drop in the Anglo American Platinum dividend (JSE: AMS)
When pricing goes the wrong way, like a 15% drop in the rand basket price of PGMs in this interim period, it’s unhelpful. When production challenges hit at the same time, like a drop in refined production of 13%, it’s disastrous.
A 24% decrease in revenue is never going to be a happy start to an income statement, with adjusted EBITDA down 69% and HEPS down by 71%.
It gets even worse by the time you reach the dividend, which is down 85% to R12 per share.
Despite this, return on capital employed was 30%. That’s a long way down from the astonishing 150% in the comparable period, but it remains a decent number overall.
Here’s a share price chart of the past five years, obviously excluding dividends:
Impala Platinum is taking Royal Bafokeng Platinum private (JSE: IMP | JSE: RBP)
The saga is finally over
After a long and extraordinarily painful process, Impala Platinum (Implats) has finally tasted success on the Royal Bafokeng Platinum (RB Plats) deal. With the results of the offer now in, Implats holds 98.35% of RB Plats’ issued shares.
This allows Implats to invoke section 124(4) of the Companies Act, which is a squeeze out provision that applies where an offer has been accepted by at least 90% of the holders of the shares in question. In such a case, the offeror (Implats) can force the remaining shareholders to sell on the same terms. This has the same effect as a scheme of arrangement (i.e. is binding on everyone) but is a different route to get there.
There was no guarantee of RB Plats being delisted in this process. With such a high acceptance rate for the offer, the delisting is now on the table along with the squeeze out.
Another JSE listing is outta here.
South32 finishes the year with a strong quarter (JSE: S32)
Production was up across the board in Q4’23, with year-on-year numbers less appealing
Full-year production numbers at South32 are a mixed bag, with increases in aluminium, copper and manganese. There were decreases in alumina, silver, lead, zinc, nickel and metallurgical coal. This is despite a strong fourth quarter, where production increased sequentially across every commodity. The year-on-year picture isn’t quite as good for the final quarter, but most commodities were higher.
Commodity prices fell in the 2023 financial year following record conditions for many commodities in the base period. The best performing commodity in terms of pricing was molybdenum. I also had to Google what that is, so don’t feel bad! Molybdenum is used in making steel alloys.
The biggest drops in price were seen in zinc, nickel and aluminium, all of which fell 20% or more.
The Taylor deposit has suffered a non-cash impairment of $1.3 billion based on delays from Covid, significant dewatering requirements and current inflationary pressures. This is part of the Hermosa project, which now has a carrying value of $1 billion. $428 million is attributable to the Taylor deposit and $519 million to the Clark deposit.
Labour unrest hits Wesizwe Platinum (JSE: WEZ)
This is exactly what our economy doesn’t need at the moment
An environment of rampant food inflation and high interest rates creates a recipe for social unrest. Although we haven’t seen anything major since the Sibanye gold strike, Hulamin recently had to deal with a NUMSA strike and now Wesizwe Platinum is dealing with something more worrying: an unprotected strike.
The Bakubung Platinum Mine has been closed as a result of the strike, with safety concerns as the obvious issue. Let’s hope the issues can be resolved soon.
Little Bites:
Director dealings:
Senior executives at Investec (JSE: INL) sold shares worth R10.4 million
Directors of Vunani (JSE: VUN) bought shares worth R300k
A director of Schroder REIT (JSE: SCD) bought shares worth £7.7k
The CEO of Spear REIT (JSE: SEA) continues to buy shares for his family, this time to the value of R21.4k
A director of Mantengu Mining (JSE: MTU) bought shares worth R6k
The odd-lots offer by CA Sales Holdings (JSE: CAA) resulted in the company repurchasing 0.02% of shares in issue for R706k. That sounds like practically nothing, yet it reduces the number of shareholders by 35% and comes with an administrative cost saving.
The CFO of Tiger Brands (JSE: TBS), Deepa Sita, has resigned to move to Australia. The effective date is 31 December and a replacement hasn’t been named as of yet.
Novus (JSE: NVS) announced that the group CFO (Keshree Alwar) will move into the CEO role at Maskew Miller Learning, now that the acquisition has been completed. A new CFO (Craig Wright) has been announced as an internal appointment from the Novus Print side of the business.
Legacy cash shell Trencor (JSE: TRE) released a trading statement for the six months to June. HEPS will be 64.8 cents vs. a headline loss of 0.3 cents per share in the comparable period.
Choppies (JSE: CHP) confirmed that after the recent rights offer, Ivygrove Holdings now has a 12.4% stake in the company.
Corporate disaster Afristrat (JSE: ATI) announced that the recent creditor application for a liquidation against the company has been withdrawn, pending the outcome of the shareholder liquidation application for which judgement was reserved in court. Talk about a rock and a hard place.
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.
Richemont suffered a significant sell-off after releasing numbers that showed negative growth in the Americas.
ArcelorMittal experienced incredible volatility after releasing a trading update that anticipates a substantial headline loss per share.
Pick n Pay also had a volatile week and is also expecting an interim loss, with pressure on sales in the core business and large once-off costs in this period.
Truworths experienced a slowdown in sales in the second half of the financial year in the Africa business, with the UK making up for it with a strong second half.
Mr Price is having a tough time, with slow sales growth excluding Studio 88 and clear pressure on margins.
Super Group is investing in the UK, with the acquisition of a 78.82% stake in the Amco business.
Northam Platinum is throwing in the towel on the Royal Bafokeng Platinum stake, accepting the offer from Impala Platinum and locking in roughly a R4 billion loss in the process.
Vodacom is growing revenue at mid-single digits, yet capital expenditure is growing at a much higher rate.
Aveng: proof that construction is always a knife’s edge (JSE: AEG)
The share price has more than halved this year
There’s genuinely nothing riskier than construction. Just one bad project can almost sink an entire firm, or at least cause significant financial distress.
Speaking of distress, for the year ended June 2023, Aveng will report a headline loss per share. That’s a big and ugly swing from a headline profit of 252 cents per share in the previous year.
After the sale of Trident Steel, there are only two subsidiaries in the group.
The Australasian and Pacific business is McConnell Dowell. An operating loss of AUD65 million is expected vs. a profit of AUD70 million in the comparable year, driven by massive losses (AUD114 million) on the Batangas LNG (BLNG) terminal project in Southeast Asia.
They still need to finish that awful project, with completion and handover expected later this year.
The good news is that the McConnell Dowell debt of AUD43 million has been reduced by AUD20 million, with the remainder converted to term debt. This debt was linked to the BLNG project guarantee.
The business closed the financial year with a cash balance of AUD177 million. With work in hand of AUD3.5 billion, the group sounds confident about its 2024 revenue budget.
At South African subsidiary Moolmans, there has been significant investment (R900 million) in heavy mining equipment for the secured Tshipi é Ntle project. Equipment is being delivered to site and commissioned, with final delivery expected by September 2023.
Sadly, delays in the delivery from OEM suppliers means that the improved result in the last quarter wasn’t enough to mitigate losses in the first nine months of the financial year. The operating loss for the year is expected to be R105 million.
To add to the uncertainty, the managing director of Moolmans has left to pursue other opportunities. Group CEO Sean Flanagan has taken the role of executive chairman of Moolmans while they find a successor.
Although the underlying losses are obviously bad news, Aveng still has a net cash balance of R1.3 billion (cash of R2.3 billion and debt of R1 billion). Around 70% of the debt is asset backed finance in Moolmans and the rest is in McConnell Dowell, with the latter expected to be settled in the next financial year.
There is no debt in parent company Aveng, as this was settled when Trident Steel was disposed of.
Glencore sounds bullish on full-year guidance (JSE: GLN)
With the first half of the year out of the way, things are looking good
Mining groups are complicated, particularly when they are as large as the likes of Glencore. Production results vary wildly across the various commodities, especially when you take into account planned maintenance and the impact of acquisitions and disposals. There are always unplanned issues, like a strike at one of the nickel mines.
In the first half of the financial year, copper, coal and zinc performed in line with expectations and guidance previously given to the market. This doesn’t mean that production was higher, by the way. As this table shows, its a real mixed bag across the group:
Full-year production guidance is unchanged.
Production is only one part of the story. Pricing is the other. Individual commodities are incredibly volatile, like cobalt which declined to historic lows in May 2023 due to oversupply. This materially impacted earnings from African copper operations.
The investment case for a group like Glencore is built around taking overall mining exposure through a single investment, rather than highly risky bets on individual commodities. The group result is always smoother than the results as you dig deeper into the operations.
There’s also no shortage of mergers and acquisitions at Glencore, with three recent examples. The deal with Bunge Limited will close in mid-2024, the sale of Cobar Management to Metals Acquisition Corp already closed and the acquisitions of a 30% stake in Alunorte and 35% in MRN are expected to complete in the second half of 2023.
Hulamin kept strike disruptions to a minimum (JSE: HLM)
The entire thing was wrapped up within two weeks
Although there’s no “good” strike action for a company, sorting it out quickly keeps the pain to a minimum. You just need to think back to the strike by workers in Sibanye’s gold business for a perfect example of the financial destruction that labour action can bring.
Hulamin seems to have sorted it out quickly. Workers affiliated with NUMSA embarked on a strike on 10 July and operations will resume as normal on 24 July, after a resolution was reached on 21 July. No details are given of the resolution, which is a disappointing omission from the announcement.
Mr Price is treading water (JSE: MRP)
Like-for-like growth is hard to come by at themoment
Mr Price is down more than 8% this year, with a volatile ride along the way for investors. It’s been a rewarding stock for traders playing the load shedding game, although that is true for most local retailers.
The company needs to improve its image with investors after a pretty poor performance in the last financial period due to inadequate preparations for load shedding. This is a very tough environment to operate in, so there’s no room for scoring own goals.
In the 13 weeks ended 1 July 2023, Mr Price managed to grow like-for-like retail sales by 0.9%, which is in the green but not by much. This excludes the Studio 88 acquisition, which obviously adds a lot of revenue to the system vs. the base period. If you include other income like debtors book income, then income was up 1.2% without Studio 88.
Selling price inflation excluding Studio 88 was just 2.4%, so volumes are down by roughly 1.5%. With plenty of commentary in the result about higher markdowns, I am quite confident that input cost inflation was higher than the selling price inflation. In other words, Mr Price took a bath on gross margin. The gross margin will be further impacted by the inclusion of Studio 88 in the results, as this is a lower gross margin business than the rest of the group.
The cash vs. credit sales relationship is important and the differing growth levels are quite surprising here. Excluding Studio 88, cash sales (87.8% of total retail sales) were up 1.5% and credit sales fell 2.7% as the group used stricter credit granting criteria. This ties in with recent bank updates that highlighted a quickly deteriorating credit environment. Several other apparel retailers have been less conservative on credit sales, particularly with cash sales under pressure.
And in case you’re wondering, higher-income customers at Yuppiechef aren’t feeling the pinch. Double-digit sales growth has been reported. Admittedly, this really is a great retailer with a solid brand and dominance in its niche.
The shape of the quarter is important here, which is why Mr Price gives detailed disclosure. April was still a rough period of load shedding with backup in only 60% of stores, so sales fell by 5% excluding Studio 88. In May and June combined, sales were up by 5.6% on the same basis. This is encouraging heading into the next quarter.
The group footprint is still expanding, with trading space up by 5.8% on a weighted average basis excluding Studio 88. With the acquisition included, trading space was up 22.6%.
In summary, the interim result isn’t going to be pretty. Although no specific guidance has been given, it’s not difficult to read between the lines that profitability is under significant pressure. It sounds like the promotions aren’t over either, with “responsible stock management” and the goal of achieving just low single digit inventory growth by the end of the interim period.
Tongaat announces an equity partner (JSE: TON)
This is surely good news for the local sugar industry
I doubt that Tongaat-Hulett shareholders will get much out of this process, but at least it looks like the company has found a saviour.
After a process to find a strategic equity partner, the company has selected Kagera Sugar – a sugar manufacturer in Tanzania which also has assets in the DRC and refineries in the Middle East. It looks like Kagera will acquire the entire South African business, as well as the investments in Zimbabwe, Mozambique and Botswana.
An updated business rescue plan will reveal full details to interested parties.
You have to strip out Egypt to properly understand the numbers
Although Vodacom group revenue was up 36.9% in the quarter ended June 2023, you have to remember that Vodafone Egypt wasn’t in the base period. If you strip that out, you get growth in group service revenue of 9.8%. If you then take out foreign exchange movements for a “normalised” view on revenue growth, you get 4.3%.
Vodacom didn’t own Vodafone Egypt a year ago, so the year-on-year growth isn’t a true reflection of the impact on Vodacom numbers. It’s important to help us assess performance though, with that business doing very well. Vodafone Egypt services revenue grew by 27.6% in local currency, as financial services revenue more than doubled.
If we look at the South African business, service revenue increased by 3.9% and total revenue was 5.6% higher. Capital expenditure is 21.5% higher, so that’s a significant drag on free cash flow and is one of the major issues with the investment case in the telecoms industry. It’s also worth noting that customers fell by 0.6%, with pressure in the prepaid business year-on-year. They did increase prepaid customers this quarter when compared to the immediately preceding quarter.
The International business (i.e. everything other than South Africa and Egypt) grew service revenue by 4.9% on a normalised basis and total revenue by 4.2%. The problem is that capital expenditure more than tripled, so the free cash flow story doesn’t look good anywhere. A major driver of this jump was the purchase of additional spectrum in the DRC.
Looking beyond the core business, the mobile money platforms across the group processed $360.6 billion in transactions over the past twelve months, up 5.8%. That’s an annual number in a quarterly update which is a bit naughty, but it’s worth mentioning anyway. The “super-app” in South Africa has reached 6.7 million downloads.
Regulatory approval is still outstanding for the acquisition of a 40% stake in MAZIV, the fibre initiative in South Africa that will be a major play for Vodacom if it all goes through.
Little Bites:
Director dealings:
A director of a major subsidiary of Tharisa (JSE: THA) has sold shares worth R1.4 million.
A director of Acsion Limited (JSE: ACS) has bought shares worth R39.4k.
Although Trematon Capital Investments (JSE: TMT) closed 18.4% after releasing a cautionary announcement, this should be interpreted with great caution as this is an illiquid stock. There was very little in the way of detail on the potential deal. We don’t even know if they are looking at buying or selling an asset.
Reinet Investments (JSE: RNI) always releases the net asset value (NAV) movement in Reinet Fund as a precursor to the change in NAV for the group. Reinet Fund is the bulk of the group balance sheet, but not all of it. Between March 2023 and June 2023, the NAV of Reinet Fund fell from EUR 33.40 to EUR 32.98, a 1.3% decline.
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