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Ghost Bites (Renergen | Sasfin)

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


The Renergen rollercoaster (JSE: REN)

The market is now overreacting to every piece of news

Renergen is a junior mining company, so the current profitability has very little bearing on the long-term investment thesis. Usually, the announcement of results barely moves the price. With so much recent focus on Renergen though, the market is now ready to jump into action at the smallest sign of news.

The share was down nearly 18% intraday on Friday before finishing the day 5.7% lower. That’s serious volatility and not on tiny volumes either, at least not by mid-cap standards.

The announcement that caused all this activity was a trading statement dealing with the six months to August 2023. Although increased production volumes from Phase 1 of the Virginia Gas Project have helped with revenue, the reality is that the startup stage is unlikely to be profitable.

There are other factors as well, like borrowing costs and a shift in the accounting of construction costs that are no longer being capitalised.

Long story short, the headline loss per share is expected to be between 28.9 cents and 30.9 cents. This is between 50% and 60% worse than the comparable period.

For reference, the share price closed at R14.43.


Perennial disappointment Sasfin strikes again (JSE: SFN)

A trading statement reveals that earnings have fallen for the year

In case you think I’m being harsh in my introduction to this section on Sasfin, here’s a really long-term chart to show you what Sasfin shareholders have been through:

As an investor, you don’t want the share price chart to look like an exciting mountain bike race profile.

Things aren’t getting any better, with HEPS down by between 15.72% and 31.12% for the year ended June 2023. This implies a range of 313 cents to 383 cents. The share price of R29.50 has been boosted by the deal with African Bank to dispose of two major business units at a much higher multiple than Sasfin has been trading at recently.

African Bank seems to have a plan for those assets being acquired. Does Sasfin have a plan for its remaining assets?


Little Bites:

  • Director dealings:
    • The company secretary of Truworths (JSE: TRU) has sold shares worth R1.87 million. Although part of this is to settle the tax on vested shares, there’s also a note about rebalancing of his personal portfolio and that suggests that this is a sale that the market should take into account.
    • A director of a major subsidiary of Bell Equipment (JSE: BEL) has bought shares worth R249k.
    • Des de Beer must be feeling a bit tight, as his latest purchase of Lighthouse Properties (JSE: LTE) shares is only worth R38k.
  • Astoria (JSE: ARA) has renewed the cautionary announcement related to a potential acquisition. No further details have been given.
  • I am struggling to see anything at EOH (JSE: EOH) to get excited about. With key strategic shareholder Lebashe decreasing its stake from 20.06% to 19.04%, I guess I’m not the only one who thinks EOH is more likely to bore you to death than anything else over the next few years.

Ghost Wrap #51 (Santova | Spear REIT | Bytes Technology | Super Group | Clicks)

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

In this episode of Ghost Wrap, I recapped five important stories on the local market:

  • Santova is a reminder that even the best cyclical companies are still subject to big moves in these markets.
  • Spear REIT is one of the most respected property funds on the local market, but debt costs are biting.
  • Bytes Technology is an excellent example of how you can give your money a passport right here on the JSE.
  • Super Group has had a really successful debt raise on the JSE, which is good news for shareholders as the cost of debt directly impacts equity returns.
  • Clicks has put in a decent performance in this financial year, but I remain weary of paying top dollar for a business that can still be disrupted.

Ghost Bites (Afrimat | Balwin | Clicks | Kibo Energy | Mantengu | Nu-World | Oceana)

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


Afrimat bucks the mining trend (JSE: AFT)

Diversification helps reduce the impact of cycles

At a time when most mining houses are heading in the wrong direction thanks to lower commodity prices and a difficult production environment, Afrimat is still managing to be in the green. It’s not easy, with revenue growth of 9.6% in the six months to August translating into only a 4.3% increase in operating profit. HEPS growth was similar at 4.4%.

Afrimat’s balance sheet remains solid, with a net cash position of R278.7 million. The debt : equity position of 6.2% is up from 4.7% at the end of February, but remains modest overall.

In the Bulk Commodities business, local iron ore sales carried the story with international sales taking strain thanks to rail limitations. Yes, even Afrimat isn’t safe from the joys of Transnet. The anthracite business is focused on the local market, providing an alternative to importer anthracite.

The Industrial Minerals business suffered the downstream impact of load shedding at its customers. Volumes dropped as customers curtailed their operations and operating profit fell 13.1% as a result.

The big win from a profitability perspective was the Construction Materials segment, where operating profit jumped from R73.1 million to R156.1 million. An increase of 26.5% in revenue combined with cost saving initiatives was enough for profit to more than double.

The Future Materials and Mining segment achieved revenue of R9 million and start-up losses of R8.5 million. The Glenover mine is in a ramp-up phase.

Diversification has always been core to the Afrimat strategy, achieved through a solid track record of acquisitions. The substantial deal to acquire Lafarge seems to be coming at the right time, with the Construction Materials segment performing well and ready to grow further. This is a critical deal, with the CFO temporarily seconded as the integration officer.

The share price closed 6.5% higher based on these results.


I’m not surprised to see revenue dropping at Balwin (JSE: BWN)

The current macroeconomic situation does no favours for property developers

To sell properties, you need confident consumers who have access to credit. The current environment is rather low on those people, which is why I’m not surprised to see revenue down by 25% at Balwin for the six months to August.

Where I am surprised is on the HEPS line, which increased by 4% despite the drop in revenue.

The revenue outcome could’ve been a lot worse, as volumes in terms of apartments recognised in revenue fell by 39%. This means that the focus was on getting improved pricing per unit, which also helped with a substantial gross margin uplift from 26% in the corresponding period to 33% in this period. That’s also ahead of the last full-year result of 29%. On apartments specifically, gross margin increased from 24% to 28%.

The annuity business is up to 4.7% of group revenue vs. 2.5% in the comparable period. This is basically the hustler segment, with everything from fibre networks through to estate support and even mortgage origination. Think of it as Balwin’s side gigs!

I do have a concern about the level of debt, coming in at a loan-to-value of 42% and 3.3 times interest cover. Although within bank covenants, that’s still a lot of debt in this environment. The board seems to agree, with no dividend in this period due to a desire to improve the balance sheet.

The share price is down around 20% this year and has almost halved in value over three years. I can’t see a reason to choose it over Calgro M3 in this sector.


The market liked the Clicks results (JSE: CLS)

Double-digit HEPS growth seems like enough for investors to be happy

Clicks has caused many a local professional investor to scratch his or her head, as the company seems to trade on an impossibly high valuation when you consider the South African backdrop. The share register is well known for having a large proportion of international shareholders, so it makes it even more surprising that Clicks can command a premium valuation.

There was more head scratching on Thursday, with the share price closing 6% higher at R261.75 based on adjusted diluted HEPS growth of 11.5%. Diluted HEPS was R10.45, so that’s a Price/Earnings multiple of 25x. Put differently, this is an earnings yield of just 4%! You don’t even get a particularly high payout ratio, with a dividend of 679 cents per share representing a dividend yield of 2.6%.

In case you’re wondering, the adjusted HEPS growth of 11.5% is based on adjusting for insurance recoveries in the prior year. Without that adjustment, HEPS would only be up 0.8%. Adjusting for insurance is perfectly reasonable though as that’s clearly a once-off.

To deliver this result, Clicks grew group turnover by 8.2%. Retail turnover was up 12.2%, so pressure in the wholesale business remains with distribution turnover at UPD up by just 1.5% because of systems implementation issues in the first half of the year. Nevertheless, operating margin moved 30 basis points higher to 8.7%. An improved product mix in terms of higher margin items helped drive the operating margin performance.

If you’re wondering why the dividend payout ratio isn’t higher, you can look to the extent of capital expenditure (a record this year at R930 million) and strategic acquisitions (R320 million). For context, dividends were R1.6 billion and share buybacks were R704 million.

Capital expenditure is expected to slow down a bit in the new financial year, with R880 million planned across new stores and pharmacies, store refurbishments, supply chain, technology and other infrastructure. R487 million is going into stores and the rest sits in supporting the business.

Is it a good result? Sure. Does the company offer meaningful returns to shareholders at this valuation? Not really. I struggle to see why international investors bother with a roughly 33% return over 5 years in rand terms. Convert that to dollars and they aren’t being rewarded for taking risk on South Africa.


Kibo Energy sells some MED shares to keep it going (JSE: KBO)

It sounds like alternative sources of funding are thin on the ground

Kibo Energy is a penny stock of note, usually trading at 1 or 2 cents per share. This is basically a call option now, because if there is any degree of success from this point onwards then the current punters will be sitting on what is lovingly referred to as a “multibagger” – a position which gives multiple times the original investment as the return.

Much still needs to happen to achieve that outcome.

After receiving further shares in Mast Energy Development (MED) in lieu of cash for partial settlement of the outstanding loan due by that entity, Kibo sold nearly £260k worth of those shares to fund ongoing group expenses and reduction of debt. The total shares received in settlement were worth £469k at the time. Kibo now holds 48.35% in MED.


Mantengu locks in a complicated equity funding line (JSE: MTU)

An investor has committed to invest up to R500 million

Mantengu Mining has put together a complicated deal with an international investor called GEM Global Yield. This is part of the Global Emerging Markets (GEM) group, an alternative investment group with operations in Paris, New York and the Bahamas. This group has completed over 500 transactions in 70 countries.

The short version of this story is that the company has committed to invest R500 million in Mantengu over time. GEM Global Yield has also been issued warrants for 20 million shares (options to subscribe for shares) and will be paid a commitment fee of R10 million, which can be settled in cash or shares.

The commitment period is three years. During that time, Mantengu can give notice to GEM Global Yield of an intention to issue shares. The pricing for any such subscription is a complicated calculation, best described as a 15-day average with the exclusion of a “knockout day” which is a day on which the closing bid price is less than 90% of the minimum floor price at which the company is prepared to issue shares. If I understand it correctly, this protects Mantengu against the kind of crazy moves that can plague illiquid shares.

The warrants also aren’t straightforward. The strike price is R4.00 per share, which is miles above the current price of R1.41. Before you think that the warrants are therefore useless, there’s a clause that if the market price on the first anniversary is less than 90% of the strike price, then the strike price is changed to be 105% of the current market price. There is also a mechanism for GEM to be paid out based on the option value of the warrants using a Black Scholes model, which is a commonly used methodology for valuing options.

As a final sting in the tail, Mantengu won’t be able to deliver a subscription notice (i.e. a request for money) if the issuance of shares would result in GEM holding more than 29.9% of shares in issue, excluding warrants. With a market cap of only R217 million, they are clearly hoping for a share price miracle to avoid a R500 million subscription over 3 years being less than 29.9% of the market cap.


Nu-World, same old South African pressures (JSE: NWL)

Consumer discretionary in South Africa isn’t where you want to be

Nu-World has released results for the year ended August. They aren’t pretty, with the company referred to a “severely distressed South African economy” and a “slowly recovering global economy” – not what you want when operating in discretionary consumer goods.

South African revenue fell by 23.1% due to weak volume growth and a dip in selling price inflation. As a silver lining, the group notes that the second half of the year was significantly better than the first half.

In the offshore business, revenue was up 25%. Some of this is rand weakness, of course.

Overall, revenue fell 11.6% and HEPS was 16.3% lower, with the dividend per share dropping by 16.4% to 125.3 cents. On a Price/Earnings multiple of 7.7x, it feels like there are better opportunities out there.


Oceana counts its lucky stars (JSE: OCE)

The group has released an encouraging trading statement

Oceana Group has released an updated trading statement for the year ended September 2023. The good news is that HEPS is expected to be between 24% and 34% higher, which suggests a range of 751.6 cents to 812.3 cents. At a closing price of R69.95, this means that the company isn’t exactly at a bargain Price/Earnings multiple, especially given how risky the fishing game is.

The performance this year was driven by higher volumes in Lucky Star canned pilchards and improved global pricing for fish oil. The group also came into this year with higher opening inventory levels than usual, which allowed it to respond to increased demand.

As a final note, the profit on disposal of Commercial Cold Storage was recognised in this period. The gain is excluded from HEPS though (and is instead recognised in EPS), which is why I only ever focus on the former and ignore the latter.


Little Bites:

  • Director dealings:
    • An executive director of Santova (JSE: SNV) sold shares worth R2.8 million.
    • The company secretary of Sasol (JSE: SOL) sold shares worth R377k.
  • City Lodge (JSE: CLH) is implementing an odd-lot offer to clean up the shareholder register and significantly reduce costs. On a share price of only R4.16, a holder of 100 shares is sitting with a position that barely buys dinner for two in a restaurant. There are a whopping 20,947 shareholders with positions this size, which is 58.22% of the total shareholder base when measured by shareholder numbers rather than value of holding. You can see why cleaning this up is worth the 5% premium to 30-day VWAP that the company is offering.
  • Zeder (JSE: ZED) has received SARB approval for the special dividend, with a payment date of 13 November.
  • Tjaart Kruger has resigned from the board of Nampak (JSE: NPK) to take up the role of CEO at Tiger Brands (JSE: TBS). You may recall that the change of management at Tiger Brands was announced a week or so ago.

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

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The week was very quiet on the mergers and acquisitions front.

Exchange-Listed Companies

Alternative investment firm New York-based Stonepeak has made an offer to Textainer shareholders to acquire 100% of the company at US$50.00 per ordinary share. The cash offer has been approved by the Textainer Board and represents a premium of 46% over the closing share price on October 20, 2023. The deal is valued at $2,1 billion. The transaction, which represents an enterprise value of c.$7,4 billion, is expected to close in the first quarter of 2024.

Famous Brands disclosed in its financial statements this week that it had acquired with effect from October 16, 2023, an interest in Munch Software. The business is a recent entrant to the Point-of-Sale software industry, offering a cloud-based platform. The new partnership will enable Famous Brands to achieve its ambitions to digitise the restaurant management technology ecosystem.

RMB Corvest (FirstRand) has, in partnership with Shalamuka Capital, acquired a 30% stake in Switch Telecom, a VoIP telecommunications service provider. Financial details were undisclosed.

Unlisted Companies

Aviapartner, a leading Airport Ground Services group in Europe, has entered into a joint venture with South African company Nas Colossal Aviation Services (NCAS). Aviapartner will hold a 51% stake in the joint venture with NCAS owning the remainder. NCAS employees some 2,400 people and operates at six South African airports of which Johannesburg and Cape Town, respectively are the first and third largest airports on the African continent. Its customer portfolio includes airlines such as Airlink, British Airways, Emirates, Ethiopian Airlines, Lufthansa and South African Airways. Financial details of the transaction were not disclosed.

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

Weekly corporate finance activity by SA exchange-listed companies

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The total number of shares held by odd-lot holders in City Lodge Hotels is 336,044, representing just 0.06% of the total issued shares in the company. As a result, the company has proposed an odd-lot offer to the 20,947 shareholders holding these shares at a 5% premium to the 30-day volume weighted average price of a share as at the close of business on Monday 4 December 2023. The repurchase will be funded from City Lodge’s existing cash resources.

Liberty Two Degrees (L2D) has declared a Clean-Out distribution from income of 8.42 cents per L2D share. The company has 908,443,334 shares in issue, inclusive of 42,791,106 treasury shares.

Transcend Residential Property Fund has finalised the Clean-out Distribution to shareholders at 29.44 cents per Transcend share.

The offer price in terms of the odd-lot offer to Quilter shareholders has been finalised at 88.10 pence/2,008.91 cents (ZAR) per share, representing a 5% premium to the VWAP price over the five trading days prior to 20 October, 2023.

Several listed companies reported repurchasing shares this week. They were:

Gemfields has completed its $10 million shareholder approved share buyback programme. In total, 58,423,901 ordinary shares were repurchased, representing 4.83% of the issued share capital on 30 November 2022. The shares will be cancelled in due course.

Prosus and Naspers continued with their open-ended share repurchase programmes. During the period 16 – 20 October 2023, a further 4,022,308 Prosus shares were repurchased for an aggregate €108,43 million and a further 249,044 Naspers shares for a total consideration of R745,5 million.

Glencore intends to complete its programme to repurchase the company’s ordinary shares on the open market for an aggregate value of $1,2 billion by February 2024. This week the company repurchased a further 10,010,000 shares for a total consideration of £43,79 million.

Labat Africa has had the listing of its securities suspended on the JSE for failure to comply with the Listing Requirements by not publishing its financial statements for the year-ending 31 May 2023 within the prescribed period.

Three companies issued profit warnings this week: Santova, Tiger Brands and Life Healthcare.

Three companies issued or withdrew a cautionary notice: Chrometco, Clientele and Steinhoff Investment.

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

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

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DealMakers AFRICA

Nigeria’s Emzor Pharmaceutical Industries has signed a finance deal with the European Investment Bank for €13,85 million, to support the local manufacture of Active Pharmaceutical Ingredients (API). By the first quarter of 2024 Emzor’s Sagamu factory is set to start production of up to 400 metric tonnes of APIs per year.

UM6P Ventures has invested in Moroccan fintech, PayLik. The value of the investment was not disclosed. The PayLik platform provides employees with the ability to access their earned wages immediately, rather than waiting for the traditional 30 day pay cycle. To date, the wellness platform has c.3,000 employees registered on its platform.

Raxio Data Centres has secured an additional US$46 million in equity funding from existing shareholders Roha and Meridiam. Raxio is a carrier-neutral Tier III data centre operator established in 2018. Its first facility was launched in Uganda and it now also operates in Angola, DRC, Ethiopia, Côte d’Ivoire, Mozambique and Tanzania.

The Agri-Business Capital Fund has invested €800,000 into Ugandan coffee trader, JKCC General Supplies. JKCC started operations in 2017, sourcing high-quality coffee beans directly from more than 3,700 smallholder farmers across Uganda. In 2020, the company secured its coffee export license and commenced coffee processing.

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

Ghost Bites (Bytes | DRDGOLD | Grindrod Shipping | Life Healthcare | Sibanye-Stillwater | Super Group)

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


More than just a bite at Bytes (JSE: BYI)

Juicy double digit growth is impressive – especially measured in hard currency

South African investors love getting exposure to locally listed groups with offshore earnings. I always caution against buying low-growth companies purely for their dividend, with some of the offshore options having that flavour. Bytes is different, with operations in the UK and Ireland that are growing quickly.

Bytes plays in major growth areas like software, security, AI and cloud services. Lucrative industries tend to attract competition, so fast growing revenue doesn’t necessarily translate into margins being maintained at a high level.

We can see this by comparing gross invoiced income (up 37.6%) to Bytes’ revenue growing by 16.3%. Gross profit is only up 15%. Gross profit as a percentage of gross invoiced income has fallen from 8.3% to 7.0% for the six months to August, which is a significant negative move driven by large contracts where pricing needs to be more aggressive.

Expenses are also under pressure, with adjusted operating profit up by 13.8%. This is lower than the gross profit growth. Margins are high (adjusted operating profit is 31% of revenue) but are trending in the wrong direction.

HEPS has increased by 17% and the interim dividend per share is up 12.5%. Remember, all these growth rates are based on GBP earnings, so that’s before the benefit of rand weakness for South African investors.

This is a really strong result overall, though investors will need to keep an eye on margins.


Pressure on costs makes DRDGOLD’s life difficult (JSE: DRD)

Charting EBITDA against the rand gold price is fascinating

DRDGOLD releases an operating update every quarter. It includes information on gold produced and sold, as well as the average gold price, operating costs and adjusted EBITDA.

In other words, everything you actually need to know is in here.

The important thing to remember about DRDGOLD is that this is a tailings business, so margins are tight as the gold is being reclaimed from mine dumps etc. rather than mined for the first time. This leads to a more erratic profit performance, dependent on not just the gold price but also the significant inflationary pressures in operating costs in South Africa.

This chart tells the story, thanks to the quarterly updates:

In the latest quarter, the average gold price received per kilogram is down 2% vs. the preceding quarter and cash operating costs per kilogram increased by 6%. This is why margins have gone backwards once again.

From a cash flow perspective, it helps the balance sheet that sustaining capex is 25% lower than the immediately preceding quarter and non-sustaining or growth capex is 34% lower.

Although performance has varied significantly this year within the sector, all of the gold players are in the green in 2023:


If you’ve ever wondered what large ships cost… (JSE: GSH)

…wonder no more

Grindrod Shipping, like all shipping groups, is always on the look-out for opportunities to buy and sell ships. This is a core part of managing the fleet.

The announcements dealing with such purchases and sales are always a fun read because they go into detail on what the ships cost. For example, the 2015-built ultramax bulk carrier IVS Bosch Hoek has been sold along with the 2016-built ultramax bulk carrier IVS Hayakita for $46.5 million. The net result of all this is that $10 million worth of debt has been repaid on the $114.1 million senior secured credit facility.

There are two other sales with expected delivery in December, being the IVS Merlion for $11.6 million and the IVS Raffles for $11.6 million. Both these numbers are before costs and the vessels don’t have any debt specifically attached to them. The underlying contracts must be interesting, as Grindrod Shipping makes it clear that delivery might not take place by December – or at all!

In a separate announcement, Grindrod Shipping pointed to disclosure by Taylor Maritime Investments (the London-listed company that owns 83.23% of Grindrod Shipping) about shipping rates. Across the Taylor and Grindrod Shipping fleets, the blended net time charter equivalent was $10,695 per day for the quarter ended September. 29% of remaining days have been contracted to March 31 2024 at a rate of $12,200 per day.

Total Grindrod Shipping debt reduced by $7.7 million to $168.9 million during the quarter ended September. Debt to gross assets is around 38.5%.


Life Healthcare’s normalised EBITDA inches forwards (JSE: LHC)

Alliance Medical Group is recognised as a discontinued operation

Life Healthcare has released an update for the year to September 2023. The important nuance here is that Alliance Medical Group is being disposed of by the group, so it’s been recognised as a discontinued operation.

This means that the focus should be on performance from continuing operations, as this is what shareholders will be left with. It’s not exactly a rocket of excitement, with revenue up by between 7% and 13% and normalised EBITDA only 1% to 6% higher.

Interestingly, the split of medical to surgical paid patient days is now very similar to 2019. COVID has thankfully nearly worked its way out the system entirely.

In case you weren’t sure whether Life Healthcare’s acquisition of Alliance Medical Group had been a success over the years, perhaps the impairment in this period of around R950 million will answer the question. The transaction costs are an astonishing R700 million. The only saving grace here is that a forex gain is likely to be recognised on the actual disposal, as the rand has obviously lost a lot of value since that asset was acquired at R17.78 to the pound.

The weak profit growth at EBITDA level coupled with increased finance costs means that earnings per share (which also includes the impairment) has fallen by 75% to 95%. The group also reports “normalised EPS from continuing operations” which miraculously grew by between 10% and 29%.

I’ll wait for the full results and that magical term “HEPS” before forming a final view. In general, I am bearish on hospital groups as eternally bad allocators of capital. Nothing I’ve seen in this trading statement makes me want to change that view.


More pain at Sibanye-Stillwater, this time in PGMs (JSE: SSW)

This is going from bad to worse

The sharp downturn in the PGM sector has been quite something to witness. Just yesterday, I published a chart showing Anglo American Platinum’s basket PGM price and how this has dropped over the past year. Now, Sibanye-Stillwater is entering into a Section 189 process regarding four shafts at the local PGM operations. A total of 4,085 employees and contractors could potentially be affected.

Two of the shafts are mature, with one having ceased production in 2022 and the other at the end of its operating life. The other two need to be restructured to achieve sustainable production.

Regarding the closed Simunye shaft at Kroondal, where production ended in 2022, employees not yet deployed to other sites will be consulted under the s189 process. The 4B shaft at Marikana was restructured during 2019 and then spent a few years using the last of the economically extractable reserves, with the closure of that shaft subject to consultations with labour representatives and non-unionised employees.

The Rowland shaft at Marikana is only running at 64% of planned production year-to-date. To be viable, management has proposed a reduction in employee numbers.

The Siphumelele shaft in Rustenburg experienced seismic activity in 2022 which restricted access to certain areas. The production forecast dropped as a result, necessitating a proposal to decrease the workforce.

This kind of thing is bad news for the country as a whole and has a significant impact on the families who depend on these mines. It’s never nice to read.


Super Group finds it easy to raise debt (JSE: SPG)

The latest debt raise was strongly oversubscribed

Whenever people talk about the JSE, they inevitably refer to the equity market. This is only one part of the overall picture, as the JSE also has a vibrant debt market that allows corporates to issue debt (or “issue paper” as it is commonly called in the industry) to banks, financial institutions and funds looking for corporate credit opportunities.

These are often structured as Domestic Medium-Term Note Programmes, or DMTNs. The framework is set up when the debt is issued and then more debt can be raised through the programme without much additional work.

Super Group’s DMTN programme goes back to April 2020. Under this programme, the company aimed to raise another R1 billion from the market recently. The auction was held the other day and it was way oversubscribed, with bids of R3.2 billion coming in.

The three- and five-year tranches were priced at 2 basis points and 6 basis points respectively below the pricing guidance. In simple terms, this means the debt is cheaper than Super Group anticipated, thanks to the level of demand.

When companies have a solid track record, they benefit from cheaper debt.


Little Bites:

  • Director dealings:
    • A director of a subsidiary of AVI (JSE: AVI) received R865k worth of shares and sold the whole lot. I usually ignore share-based awards as this isn’t a useful signal about the share price. But when everything is sold rather than just the taxable portion, that’s a genuine insider sale in my books.
    • A prescribed officer of ADvTECH (JSE: ADH) has sold shares worth R614k.
  • Steinhoff Investment Holdings (JSE: SHFF) – the preference share structure rather than the now worthless and delisted ordinary shares – has withdrawn the cautionary announcement about a potential deal.

Ghost Bites (Anglo American | Amplats | Famous Brands | Kumba | Oasis Crescent | Primary Health Properties | RMB Holdings | Santova | Spear REIT)

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


Important correction: last week, I noted that the odd-lot offer by Quilter (JSE: QLT) was an opportunity to potentially make some “beer money” on the arbitrage. As a reader thankfully reminded me, you actually needed to be on the share register months ago to qualify. In other words, this arbitrage is not available. The structure is very different to a standard odd-lot offer. My apologies for this oversight. This is also a good time to remind you that the ultimate responsibility for research and any decisions always rests with you. I do my very best to avoid any errors, but even ghosts are only human.


Copper up, diamonds down at Anglo American (JSE: AGL)

The company released its production report for the quarter ended September

It never really makes sense to me why a diversified company like Anglo American gives a view on total production vs. the prior period. The underlying commodities are so different that you have little choice but to dig into the details.

The good news story is firmly in copper, with production up 42% thanks to the contribution of Quellaveco. Things are less enjoyable in PGMs (down 2%), nickel (down 7%), and iron ore (down 4%). Manganese ore headed in the right direction, up 4%.

We then get to the major negatives. Steelmaking coal production fell 21% and diamonds dropped by 23%, with the latter due to planned reductions (particularly in South Africa) as Venetia transitions to underground operations.

Rather than hitting you with selected numbers in terms of commodity prices, I’ll give you the entire table so you can see just how many commodities have dropped in price:

In terms of production guidance, copper has been reduced for the full year. Guidance across other commodities has been retained.


Anglo American Platinum really is up against it (JSE: AMP)

Production is under pressure and the rand basket price of PGMs just keeps dropping

For the third quarter ending September 2023, total PGM production dropped by 2% at Anglo American Platinum. Refined PGM production fell 9%, thanks to the combined impact of a “multi-municipal water stoppage” in Rustenburg and lower metal in concentrate production.

PGM sales were up 2% as the company was able to rely on refined stock to prop up sales at a time when production went the wrong way.

Speaking of going the wrong way, here’s the PGM basket price for the past year or so:

Note that this chart is already in ZAR, so it would’ve looked worse in USD.

And of course, adding insult to injury, a drop in production tends to mean an increase in unit costs, especially during inflationary times. Despite the PGM production guidance for full year 2023 being unchanged, unit cost per PGM ounce is expected to be at the upper range of R16,800 to R17,800 per ounce produced.

It’s not hard to see why the share price is down 57% this year.


Earnings fall at Famous Brands, yet the dividend is higher (JSE: FBR)

I would prefer to see a reduction in debt rather than a higher dividend

As though we don’t already have enough problems in South Africa, Famous Brands notes that we had a poor potato harvest in the country this year. Look, I can put up with a lot of things in life and most of what this country throws at me, but I won’t cope with not having any chips.

For now at least, there are still chips. Revenue increased by 10% for Famous Brands in the six months to August, so I’m clearly not the only fan of chips in this world.

Unfortunately for Famous Brands shareholders, that’s where the good news stops. With pressure on food input costs, massively higher insurance premiums (thanks to levels of civil unrest in this country) and support to franchisees through load shedding, operating margin fell from 11% to 9.4% and group HEPS dropped by 7%.

The trend of consumers trading down in search of value continues, with the “Signature Brands” (the fancier restaurants) reporting evening trade that hasn’t recovered to pre-pandemic levels. Families still want to get out the house, but affordability remains a challenge.

I worry about the dividend going up by 6% at a time when HEPS has fallen by 7%. With R1.25 billion in debt on the balance sheet, I can’t help but wonder whether that cash would be better utilised in reducing debt.

Strategically, the company has noted Cote d’Ivoire, Egypt and the Democratic Republic of Congo as potential growth areas for Debonairs and Steers.

I continue to prefer Spur in this sector for its relative simplicity and quality of strategic execution.


Transnet continues to hurt Kumba (JSE: KIO)

This time, the port seems to be worse than the rail situation

You don’t have to read very far into a Kumba announcement to find the word “Transnet” – the Achilles’ heel of South African resources.

For the quarter ended September, Kumba’s production was 2% lower quarter-on-quarter. The good news is that it was 4% up year-on-year, thanks to improvements in rail performance and a reduction in cable theft.

Before you get too excited, equipment failures and adverse weather conditions at the Saldanha Bay Port impacted ship loading, with sales down by 12% year-on-year and 6% quarter-on-quarter. There’s never a dull moment with Transnet.

The silver lining is that levels of finished stock at Saldanha Bay Port improved, so hopefully this benefit will be felt in the next period. Full year sales guidance for 2023 has been retained.

In term of iron ore pricing, the year-to-date average FOB export iron price was $112/dmt, which is down from $117/dmt in the comparable nine-month period.


Oasis Crescent: having no debt works well in this environment (JSE: OAS)

Shariah compliant funds aren’t exposed to rising interest rates as debt is not permissible

At a time when most REITs are finding it difficult to grow distributable earnings because of the high cost of debt, Oasis Crescent is enjoying the combination of high inflation and zero debt on the balance sheet. This has driven the distribution higher by 12.7% for the six months to September.

In the announcement, the fund reminds the market that unit holders have enjoyed a return of 10.3% per annum since inception vs. SA inflation of 5.9% per annum.


Welcome, Primary Health Properties (JSE: PMP)

The secondary listing is complete and we also have a trading update

The thesis behind Primary Health Properties (PMP) is centred around a basic concept: dependable rental income in a real currency. It’s as simple as that. This isn’t terribly different to the logic that people use when investing in global dividend stalwart British American Tobacco.

I think we can all agree that a healthcare group sits at the other end of the spectrum to a tobacco company on the public benefit scale, no matter how many ESG consultants and colours of the rainbow British American Tobacco uses on its website. There’s an ESG tick-box exercise and then there’s common sense.

The good news is that PMP is managing to increase its rent in a time of inflation. That sounds incredibly obvious, but “negative reversions” have been a feature of South African REITs over the past year or two.

To give you an idea of the PMP strategy, a recent acquisition is a community care facility in Ireland, presumably to help them with the pain of another quarter final exit in a Rugby World Cup. This property is fully let to the public health service on a 25-year lease with five-yearly inflation indexed rent reviews.

Before you assume that nothing can possibly go wrong with this story, don’t forget that debt costs have been increasing sharply in developed markets. The loan to value ratio at 30 September 2023 was 45.8%, up from 45.6% just three months prior. 97% of the group’s debt is fixed or hedged at a weighted average cost of 3.3%. Debt is never fixed for an indefinite term, so any further research here should be around when the debt expires and what the likely refinance rate might be.

Let’s hope we actually see some liquidity in this thing on the local market. The very last thing that anyone wants to see is a dud listing with a disappointing outcome for this international company.


RMB Holdings receives the base loan repayment from Atterbury (JSE: RMH)

The issuance of shares to settle the rest of the loan is expected soon as well

Back in August, RMB Holdings announced to the market that Atterbury Property Holdings has entered into an agreement with the company regarding the repayment of the R487 million loan.

In accordance with that agreement, Atterbury has repaid the base loan (R162 million plus interest) in cash. The remaining debt (R325 million) is repayable through the issue of shares based on the underlying net asset value of Atterbury. That calculation is being finalised, with shares expected to be issued on 1 November 2023.


Santova reminds us that what goes up… (JSE: SNV)

…probably comes down in a cyclical industry, regardless of how good the strategy is

If you followed markets during the pandemic, you’ll remember that shipping costs went to extreme highs as supply chains suffered from delays at ports and ships that got mysteriously stuck in important canals. Santova points out that the Drewry World Container Index (a common indicator for shipping rates per container) dropped from a high of $9,700 in January 2022 to $1,400 in September 2023. Current rates are even lower than pre-pandemic levels.

Although you might be tempted to think that this means heightened demand for shipping due to it being cheaper, the problem is that the price is a function of demand rather than a driver of demand. In other words, the price has fallen so sharply because demand has fallen as well.

Despite a significant decrease in gross billings as shipping rates have fallen, Santova managed to increase its billings margin in the six months to August. This was enough to drive a 3.3% increase in revenue.

The problem is everything below the revenue line, as operating margin has deteriorated from 45.7% to 33.0%. Santova highlights that this is above the industry average, but the trend still hurts for investors.

This is why HEPS is down by 22.9%, with share buybacks softening the blow of the decrease in operating profit.

I’ve always had my worries about cash flow generation in this business model, so I must point out that cash generated from operations for this period was only R25.3 million vs. R119.5 million in the comparable period.

And in case you’re out there thinking that the global strategy of Santova is propping things up, you would be interested to know that the South African business is showing defensive characteristics and only the UK moved solidly in the right direction, with a major drop in profits in Asia Pacific and Europe. The group is early in its US journey, showing a modest loss there.

Overall, the share price is flat on a 12-month view. Here’s how severe the rollercoaster has been along the way:


Spear’s dividend is up thanks to a higher payout ratio (JSE: SEA)

Even the best local property funds are finding things difficult at the moment

Spear REIT is focused on the Western Cape. Unless you’ve been living under a rock, you’ll know that this is the province where exciting things are happening. Even against that backdrop though, it’s not easy to navigate this environment.

For the six months to August, distributable income per share has decreased by 1.19% to 40.77 cents per share. The distribution per share is up by 3.21% to 38.33 cents, which is a 94% payout ratio vs. 90% in the prior year. The reason that the distribution per share has grown is because the payout ratio has been increased.

If we look at key metrics, there are some good signs. Reversions on new leases were positive 3.57% and the value of the portfolio increased by 5.85%. It’s less encouraging that revenue fell 0.41% and operating expenses increased by 0.31%. The better news is that on a like-for-like basis, operating margin expanded.

Another source of pressure is debt on the balance sheet. The loan-to-value has increased from 36.30% to 39.58% over the past six months and interest cover has dropped to 2.36 times. Debt levels are fine overall, but the increase in leverage has put the brakes on earnings growth. With the average cost of funding up by 93 basis points and 67% of the debt being variable in nature, investors will watch this carefully.

As a final comment, international business process outsourcing firms are establishing a larger presence in Cape Town, as it is obviously a great city for attracting talent and the South African timezone and availability of local skills make us an appealing location for outsourcing. This is proving to be very helpful for office vacancies.


Little Bites:

  • Director dealings:
    • A director of FirstRand (JSE: FSR) purchased shares worth R2.73 million.
    • A director of NEPI Rockcastle (JSE: NRP) bought shares in the company worth R181k.
  • RECM & Calibre (JSE: RAC) released a trading statement for the six months ended September. The metric used is net asset value per share, which is expected to be between 30% and 32% lower. This is a range of R12.00 to R12.40 per share. The current share price is R9.50.
  • Liberty Two Degrees (JSE: L2D) has confirmed the clean-out dividend that will be paid to shareholders before the company is taken private, coming in at 8.42 cents per share.
  • Clientele Limited (JSE: CLI) has renewed the cautionary announcement relating to negotiations for a potential acquisition in the insurance sector. This has been going on for some time now, with shareholders none the wiser as to the potential transaction.
  • ISA Holdings (JSE: ISA) has tightened up the range for its earnings, releasing a further trading statement that reflects HEPS growth of between 18% and 38% for the six months ended August 2023.
  • Hyprop (JSE: HYP) wants to retain equity in every way possible, which is why the company makes use of dividend reinvestment programmes. To entice shareholders to reinvest dividends, the reinvestment price is at a discount to the market price. Given the deal to acquire Table Bay Mall, it’s especially important to Hyprop to retain R500 million in equity capital through this programme. The reinvestment price has been set at R24 per share, which is a discount of 12.3% to the clean price 15-day VWAP. The clean price takes into account that the current share price has an embedded cash dividend.
  • Sirius Real Estate (JSE: SRE) announced that Fitch has maintained its investment grade credit rating with a stable outlook. Notably, Fitch liked the way that Sirius has transferred some of its best practices from Germany to the UK.
  • Zeder (JSE: ZED) noted that the SARB approval for the special dividend of 10 cents per share hasn’t been received yet.
  • Salungano Group (JSE: SLG) released a very angry SENS announcement regarding inaccuracies in an IOL article. It’s a sensitive matter, as wholly-owned subsidiary Wescoal Mining is currently in a voluntary business rescue process. The article alleges that the group has been unable to pay its debts, which the company refutes.
  • Conduit Capital (JSE: CND) is still trying to sell CRIH and CLL, with the fulfilment date for conditions to be met postponed once again. This has been going on since June. The new date is 30 November.
  • Chrometco (JSE: CMO) is suspended from trading. During a suspension, the rules still apply though. This is why the company has renewed a cautionary announcement regarding circumstances relating to a material subsidiary. It’s hard to use caution when you can’t trade the shares!

The ETF revolution: A global boom

4

In recent years, the global investment landscape has experienced an unprecedented surge in the popularity of Exchange-Traded Funds (ETFs). These financial instruments, once considered a niche product, have now become a dominant force in the investment world

In PwC’s recent report titled: ETFs 2026: The next big leap report, it was revealed that 58% of respondents expect global exchange-traded fund assets under management (AuM) to reach USD 18 trillion by 2026. An additional 84% expect online platforms to represent the primary source of future demand for ETFs.

The global ETF boom represents a fundamental shift in the way individuals and institutions approach investment strategies. ETFs have become the cool kid on the block, drawing in investors the world over with the allure of transparency, cost-efficiency, diversification, and tax benefits. As the ETF industry continues to innovate and expand, it is positioned to play an even more significant role in the future of investing.

Over the past few decades, traditional investing was synonymous with unit trusts and actively managed portfolios. However, the rise of ETFs has transformed the way individuals and institutions alike navigate their investment strategies. But what’s fueling this ETF revolution?

At the core of this transformation are several key factors that collectively explain the unprecedented global ETF boom.

Chief Investment Officer at Satrix* Kingsley Williams, offers compelling insights into the phenomenon.

Reason 1: Certainty in Investment Strategy

One of the primary driving forces behind the ETF boom is the desire for greater certainty in investment strategies. Traditional unit trusts often relied on discretionary management, which could introduce unpredictability into investors’ portfolios. In contrast, ETFs are rooted in rules-based or systematic strategies, typically linked to specific indices. This approach provides investors with unparalleled transparency and consistency, instilling confidence that a fund tracking an index will adhere steadfastly to its intended strategy.

Investors appreciate the assurance that an ETF’s rules-based approach offers. It ensures that the fund will unemotionally rebalance back to its stated objective, consistently delivering what’s on the label. This level of predictability is particularly appealing to investors who are designing or managing an overall solution to achieve a particular investment outcome.

Reason 2: Performance Benefits of Indexation

The second reason contributing to the ETF boom revolves around the performance benefits of indexation versus actively managed funds. The arithmetic of active management often leads to underperformance of a majority of active funds relative to an indexed alternative, due to various factors, including higher fees, market volatility, and human biases. In contrast, index-based strategies present a compelling proposition by delivering reliable returns over the medium to long term.

This is a critical advantage that ETFs offer. By tracking well-constructed indices, these funds bypass the pitfalls of active management and enable investors to enjoy the full benefits of market growth without the drag of excessive fees and potential underperformance.

Reason 3: Drive for Lower-Cost Strategies

The cost of investing is a paramount consideration for investors, both individual and institutional. Herein lies another driver of the ETF boom: the pursuit of lower-cost investment strategies. ETFs, with their cost-effective structure, have emerged as an attractive choice for investors looking to maximise their returns.

The magic of compounding, often referred to as the eighth wonder of the world, is amplified when investors minimise the tyranny of compounded costs over an extended period. ETFs facilitate this cost-efficiency, allowing investors to accumulate wealth with greater efficiency.

Reason 4: Protection from Transaction Costs

One of the distinctive design features of ETFs is their ability to protect existing investors from the costs associated with other investors entering or exiting the fund. This mechanism, akin to the user pay principle, ensures that those transacting in the fund bear the associated costs, shielding long-term investors from negative impacts.

This unique characteristic provides peace of mind to investors, knowing that the actions of others entering or exiting the fund won’t disrupt their performance. It aligns the interests of all investors within the ETF, making it an ideal choice for those seeking stability and predictability.

Reason 5: Increased Investment Strategy Choices

ETFs have democratised investing by offering an extensive range of investment strategy choices. This democratisation is achieved through the ease of launching ETFs and the protection against transaction costs. These factors enable asset managers to introduce diverse strategies to the market, providing investors with more options to construct their portfolios.

Investors now have greater freedom to tailor their investment strategies to their precise needs, whether they seek exposure to specific sectors, asset classes, or themes. This enhanced flexibility has made ETFs a preferred instrument for constructing diversified portfolios.

Reason 6: Access to Diverse Asset Classes

Another compelling aspect of ETFs is their ability to make various asset classes accessible through the stock exchange mechanism. While traditional exchanges primarily catered to equities, ETFs have expanded the horizon by offering exposure to bonds, money market instruments, currencies, commodities, and more.

The beauty of this approach is that investors can interact with these diverse asset classes as easily as they would with equities. This added convenience has revolutionised access to traditionally opaque markets, bringing transparency and liquidity to asset classes that are challenging to navigate directly, and are often inaccessible to direct retail investors.

Reason 7: Unlocking Tax Benefits

In specific markets, ETFs unlock tax benefits that further enhance the returns they deliver to investors. While the intricacies of tax considerations may vary by jurisdiction, understanding these nuances can be vital for investors, especially when accessing global investment strategies.

For example, some ETF structures may provide more tax-efficient ways to access certain markets or assets compared to traditional unit trusts. These tax advantages make ETFs an attractive choice for investors keen on optimising their investment outcomes.

Reason 8: Growth Potential in South Africa

While the ETF boom has swept across the globe, individual markets are at different stages of adoption. In South Africa, for instance, the take-up of index strategies and ETFs is still in its relative infancy. However, promising signs suggest a bright future for ETFs in the region.

Currently, South Africa lags behind more mature markets like Europe and the United States in terms of ETF adoption. There is an approximately 15% [1] take-up across local equity indexed strategies so there is still a lot of runway in our market in terms of adoption. Predictions indicate that global ETF assets under management will continue to experience robust growth, with South Africa poised to play a part in this expansion.

Reason 9: Unlocking Untapped Markets in Africa

The influence of South African ETFs has extended beyond its borders. These ETFs have been cross-listed in various other African nations, including Namibia, Botswana, Ghana, Mauritius, Kenya, and Nigeria.

Many of these markets are dominated by cash-type investment strategies or bonds due to high-interest rates. Furthermore, investors in these regions often struggle to access global investment strategies due to regulatory hurdles.

This cross-listing approach has enabled South African ETFs to contribute to the broader African investment landscape. ETFs are bridging this gap by providing a convenient and cost-effective way to facilitate access to a broader range of asset classes and investment strategies. This democratisation of investment opportunities empowers individuals and institutions across the continent to diversify their portfolios and seek returns beyond their domestic markets.

The Broader Context

The global ETF boom is not a solitary phenomenon but part of a broader shift in how individuals perceive and approach investing. Only a few years ago, there was skepticism about this investment option, especially in markets like South Africa, where the investment landscape appeared distinct and challenging. Concerns were raised about the country’s resource-heavy stock market and its concentration relative to global counterparts.

However, as time has passed, real-world data and tangible results have begun to reshape investor perceptions. The emergence of ETFs with proven track records has made a compelling case for these investment vehicles. The numbers speak for themselves, as clients have increasingly compared the returns generated by ETFs to those from other investment options.

Financial education has played a pivotal role in this transformation. As investors become more aware of the array of options available to them, platforms like SatrixNOW have made it easier for individuals to explore ETFs and embark on their investment journey with confidence.


[1] Source: Satrix & Morningstar across all (ASISA) SA Equity & Real Estate categories, 30 June 2023


*Satrix, a division of Sanlam Investment Management

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CIS disclosure

Satrix Investments (Pty) Ltd is an approved FSP in term of the Financial Advisory and Intermediary Services Act (FAIS). The information does not constitute advice as contemplated in FAIS. Use or rely on this information at your own risk. Consult your Financial Adviser before making an investment decision. Satrix Managers is a registered Manager in terms of the Collective Investment Schemes Control Act, 2002.

While every effort has been made to ensure the reasonableness and accuracy of the information contained in this document (“the information”), the FSPs, their shareholders, subsidiaries, clients, agents, officers and employees do not make any representations or warranties regarding the accuracy or suitability of the information and shall not be held responsible and disclaims all liability for any loss, liability and damage whatsoever suffered as a result of or which may be attributable, directly or indirectly, to any use of or reliance upon the information. 

Ghost Bites (Datatec | Europa Metals | Richemont | Kibo Energy | Sasol | Southern Palladium | South32 | Textainer)

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


Datatec reports massive growth in earnings (JSE: DTC)

Networking and cyber security are solid underlying drivers of growth

Datatec has released its interim numbers for the six months to August and they tell quite a story, with revenue up 14.7% and EBITDA up 39.2%. Continuing HEPS grew by 80% – in US dollars! Earnings from continuing operations is the right metric because Analysys Mason was in the base period, so it distorts the growth if we include it in the base for the calculation. This business was disposed of in September 2022.

Datatec remains a very low margin business though, with EBITDA margin of just 2.9%. That’s at least better than 2.4% in the comparable period, with an uptick in gross margin (driven by forex movements) as the primary reason for the improved EBITDA performance.

Looking at divisional results, Westcon International is the largest contributor to group revenue at 67%. It grew revenue by 14.9% and gross profit by 33.4%, with gross margin up from 9.5% to 11.0%. That’s good news.

The next largest is Logicalis International at 23% of revenue, although this is a structurally more profitable business with a contribution of 38% of gross profit (vs. 49% at Westcon International). It grew revenue by 12.1% and EBITDA by 41%.

The smallest is Logicalis Latin America, contributing 10% of group revenue and growing by 20.2%. with EBITDA swinging from a $1 million loss to a $5.8 million profit, representing a margin of 2.2%.

Perhaps the only blemish is a 57.5% increase in net debt, which drove the group net interest charge up from $15.8 million to $25.1 million. For context, EBITDA was $80.6 million.


Europa Metals has submitted its mining licence application (JSE: EUZ)

The submission envisages a life of mine of 15 years

Without a doubt, the names of regulators in Spain seem to be much more exotic than in South Africa. The recipient of Europa Metals’ mining right application is the Junta of Castille and Leon, with all documentation covering the exploitation, restoration and environment impact now submitted.

The Toral project’s 18-year operations (including a life of mine of 15 years) will create over 360 direct employment opportunities and 1,400 indirect jobs.

This is a major milestone, with the share price closing 18% higher in appreciation.


The FARFETCH – YOOX Net-a-Porter deal gets the green light (JSE: CFR)

Richemont will receive shares in FARFETCH

Personally, I still believe that the FARFETCH business model lives up to the name. We covered the company in Magic Markets Premium and we didn’t like the story. It’s down over 61% this year.

Richemont isn’t quite sure what else to do with the YOOX Net-a-Porter (YNAP) business, so the attempt to make it work is based on selling a 47.5% to FARFETCH and being paid in shares in the company. In addition to this, Symphony Global (an investment vehicle of Mohammed Alabbar) will take a 3.2% in YNAP. Naturally, the idea here is that most Richemont Maisons make their products available on the FARFETCH marketplace.

This ideal was announced a while ago, with the latest news being that the European Commission has given regulatory approval to the transaction and related partnership.


Kibo Energy’s subsidiary has a new JV partner (JSE: KBO)

The joint venture deal in Mast Energy Developments has been going on for a while

After a rearrangement of the investor consortium, Proventure Group has signed a replacement first definitive and binding joint venture agreement with Mast Energy Holdings, a subsidiary of Kibo Energy. Proventure is a renewable energy investment group based in India.

Proventure is required to make an initial interim payment of £2 million. The long-stop date for completion of the joint venture agreement has been extended to 30 November 2023, with a balance of £3.9 million being payable. The parties will also look to execute a second joint venture.


Sasol’s energy business is improving, but chemicals are hurting (JSE: SOL)

The production and sales update for Q1’24 has been released

Sasol operates in a world that is filled with volatility and uncertainty. Product demand tends to be all over the place and inflationary pressure on costs is substantial. It’s not an easy business to run.

In a production and sales update for the first quarter, Sasol highlighted that the Energy business has seen improved performance year-on-year. Within that segment, the mining business improved productivity by 9% and the coal stockpile continues to be built, with own production supplemented by external coal purchasing. Export sales of coal were flat year-on-year, thanks to ongoing issues at Transnet Freight Rail. In the gas business, production is 11% higher than the prior year and natural gas and methane rich gas volumes increased by 4% and 7% respectively. Finally, the fuels business saw production at Secunda Operations increase by 7% and Natref’s run rate increase by the same percentage. Liquid fuel sales grew 6%.

The Chemicals business doesn’t have a positive story to tell, with external sales volume up by 5% but revenue down by a whopping 28% because the average sales basket price has dropped 31%. If we dig deeper, we find that Chemicals Africa saw revenue fall by 23% despite volumes up 7%, although Transnet remains a serious issue here. Chemicals America saw a 28% drop in revenue and a 16% increase in volumes. Chemicals Eurasia was hardest hit, with revenue down 33% and volumes down by 13%.

It’s a mixed bag overall, as is typical of such a volatile group.


Southern Palladium releases geotechnical study results (JSE: SDL)

You’ll be thrilled to learn that there are no chromite stringers in the hanging wall

I always enjoy the release of drilling results, as I get to read a long announcement without having the slightest clue what is actually going on. Geotechnical study results are clearly no different, as I learnt from Southern Palladium.

Aside from all the super technical terminology, there’s a note from management that the study at Bengwenyama has yielded promising results. The other good news is that the Department of Mineral Resources and Energy (DMRE) has confirmed the acceptance of the Mining Right application.


South32 reaffirms FY24 production guidance (JSE: S32)

Manganese has been a highlight this quarter

South32 has released a quarterly report for the three months to September, representing the first quarter of the FY24 year. Production guidance for the full year is unchanged across all operations, which is good news.

Manganese production increased by 4%, with a quarterly record at South African manganese and a solid performance in Australia as well. Alumina production increased by 3%, as did aluminium production. Copper production fell 16%, zinc production was down 6% and nickel fell 14%. Silver was up 23% and lead was up 16%. Finally, metallurgical coal fell by 18%.

Net debt increased significantly, up by $299 million to $782 million during the quarter. Lower commodity prices were a factor here, as was a temporary increase in working capital. Despite this, $22 million was invested in share buybacks, with the company now 95% through its repurchase programme.

In terms of major projects, South32 commenced federal permitting at the Hermosa project and remains on-track to complete the feasibility study for the Taylor zinc-lead-silver deposit in the second quarter.


Textainer attracts a substantial buyout offer (JSE: TEX)

The share price closed 41% higher in a major payday for shareholders

Textainer is a locally-listed group and is one of the world’s largest lessors of intermodal containers. It has attracted the affection and money of Stonepeak, an alternative investment firm specialising in infrastructure and real assets.

Textainer common shareholders will receive $50 per share in cash, representing a premium of 46% to the closing share price on 20th October. After 16 years of being publicly traded, the company is likely headed for the exit, as I can’t see shareholders turning this down.

Interestingly, the merger agreement including something called a “go-shop” period that lasts for 30 days, permitting Textainer and its financial advisor to actively solicit alternative acquisition proposals. It would be quite an outcome if a bidding war emerged, but I wouldn’t count on it.

The company expects to continue its quarterly dividend until the deal closes.


Little Bites:

  • Director dealings:
    • Des de Beer has bought yet more shares in Lighthouse Properties (JSE: LTE), this time worth R4.7 million.
    • An associate of a director of Standard Bank (JSE: SBK) has sold shares worth R2.8 million.
    • The group managing executive of Nedbank (JSE: NED) retail and business banking has sold shares worth R904k.
    • A director of a major subsidiary of Bell Equipment (JSE: BEL) has bought shares worth R53k.
  • This is going to sound like something you’ve already heard in Ghost Bites recently, but Gemfields (JSE: GML) has now completed its share buyback programme. The reason they gave an update just the other day is because they had gone through a threshold that triggers an announcement, whereas this announcement is because the full programme has been completed. In summary, the buyback programme of $10 million was completed at an average share price of R3.1739.
  • If you are interested in Hulamin (JSE: HLM), watch out for an investor presentation coming on 25 October. It should be available on the website.
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