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Ghost Bites (Clicks | Nampak | Nedbank | Nu-World | Steinhoff)

The Finance Ghost
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Ghost Bites (Clicks | Nampak | Nedbank | Nu-World | Steinhoff)

Clicks continues winning market share (JSE: CLS)

But the earnings growth continues to look too low for the current valuation

Clicks remains an anomaly in the market. Not only does the share price trade at a huge multiple, but there’s a heavy tilt towards foreign ownership in the shareholder base. One would assume that the South African risk premium should hurt the share price here, yet the share price is only down 17% in the past year. That doesn’t seem like enough of a correction when viewed against earnings growth and the state of affairs in this country.

For the six months ended February, group turnover increased by 6.8% if we exclude vaccinations in the current and prior period. Another adjustment is made for insurance proceeds in the comparable period, without which adjusted HEPS is up 10.2%. To be honest, I’m comfortable with both of those adjustments.

The dividend is only up by 2.8% though, which is still higher than unadjusted HEPS which increased by just 0.9%. If you were hoping that the Clicks dividend would help your investments keep pace with inflation, you can officially feel disappointed.

In terms of underlying performance, Clicks surpassed 10 million Clicks ClubCard loyalty members and reported market share gains in all product categories. The wholesale picture is less favourable, with UPD continuing to face pressures on pricing. Operating costs are growing at a rate well above inflation at the moment, thanks to the likes of fuel and security costs.

In acquisition news, you may recall the November 2022 announcement of the R105 million acquisition of Sorbet Holdings. The group is also acquiring 24-hour pharmacy M-Kem, giving you the opportunity to wait in a long and frustrating queue at any time of day now.

Despite the tough consumer environment, Clicks is investing heavily in growth. 50 new stores and 40 pharmacies are planned to be opened this financial year, with record capital investment of R958 million planned. R477 million is earmarked for new stores and refurbishments, while R481 million will be invested in supply chain, technology and infrastructure.

The full year outlook is growth in adjusted diluted HEPS of between 8% and 13%. On an unadjusted basis, diluted HEPS is expected to differ by -2% and 3% year-on-year.

Disappointingly, there is no mention that I could find in the earnings of the recent Constitutional Court judgement against Clicks. The future of Clicks’ ownership of a manufacturing pharmacy division is in doubt, along with any potential penalties for breaching legislation.

Nampak brings in a war time CEO (JSE: NPK)

Erik Smuts has resigned from the CEO role

There are peace time and war time CEOs in this world. Based on the narrative on Twitter, the new interim CEO of Nampak is firmly the latter. Phil Roux has loads of experience in the FMCG industry and in corporate turnarounds as well, a skill that Nampak needs more than ever before.

He will replace Erik Smuts in the top job after Smuts “opted to step down” – with immediate effect. Read into that what you will. The official line is that the restructuring process means that the CEO’s role has changed materially.

After 25 years of service to Nampak, Smuts will hopefully make a better decision than ruining his life by going to run Eskom. That is a path that I suspect won’t be repeated.

Nedbank wants to take out the odd-lots (JSE: NED)

Get ready for another arbitrage opportunity in June

Odd-lot offers have been popular recently on the JSE. Companies use them to remove the administrative burden associated with having a long tail of shareholders with small stakes. I hope that by now, companies are doing the maths properly around what it will actually cost. Inevitably, there’s an arbitrage opportunity that attracts many new shareholders who buy fewer than 100 shares.

Nedbank is likely to be another example, with the odd-lot offer price set to be a 5% premium to the 10-day volume-weighted average price (VWAP) calculated as at 19 June 2023. If shareholders keep a close eye on the pricing, they might be able to generate a modest profit.

At the current price, 99 shares would cost R20.4k and so a 5% profit would be just over R1k. If it works out that way, it’s a useful boost to anyone’s bank account.

Nu-World releases detailed interim results (JSE: NWL)

HEPS has halved and now investors can understand why

It starts right at the top of Nu-World’s income statement, with revenue down by 15.7% for the six months ended February 2023.

South Africa was worse than the international business, with sales down by 26.3%. One of the hardest-hit categories is new TVs, which the company blames on load shedding. That seems sensible to me – nobody wants a decorative TV. That’s not a great read-through for MultiChoice, either.

Offshore, revenue was up 31.5%. This was thanks to new markets being opened up, although profitability suffered due to trading conditions.

I suppose the good news is that inventory fell by 43.5%, so it seems as though a lot of inventory was cleared out and not necessarily replenished. That’s good for working capital.

Pepco is the irrelevant gem inside Steinhoff (JSE: SNH)

These results are a wonderful example of putting perfume on a pig

I see that Steinhoff is now changing hands at around 21 cents per share. So, only 21 cents to go until it reaches fair value.

It’s such a pity that the holding company is essentially worthless, because an underlying business like Pepco is doing good things in Europe. The company has released its second quarter trading update and growth at Pepco’s European business is sky high, up 30.7% in constant currency. The Poundland business in the UK is moving at a far more sedentary pace, up 6.7% in constant currency.

On a combined basis, Q2 revenue growth is 19.7% in constant currency. Importantly, the rollout of stores is a huge part of the story. To get a sense of how existing stores have been performing, we need to look at “like-for-like” growth. On that metric, group revenue is up 8.5% for the quarter.

This means that things have slowed down a bit, with the growth for H1 (the six-month period of Q1 + Q2) coming in at 22.8% including new stores and 11.1% on a like-for-like basis.

Against a backdrop of inflationary pressures on consumers, the company is pushing forward with a growth strategy focused on new stores. For the first time, new store growth in Western Europe exceeded Central Europe.

At some point, when Steinhoff is owned by its creditors, I’m sure they will be happy with Pepco.

Little Bites:

  • Director dealings:
    • As a reminder of how much richer Des de Beer is than basically all of us, he received almost R95 million worth of shares in Lighthouse Properties (JSE: LTE) just as a scrip dividend.
  • An independent expert has determined that the terms of Exemplar REITail’s (JSE: EXP) small related party transaction with McCormick Property Development Company are fair to shareholders.

Who did what this week across the African continent?

Vanessa Aitken
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Who did what this week across the African continent?

DealMakers AFRICA

Automotive technology company Autochek has entered the Egyptian market through the acquisition of a majority stake in AutoTager for an undisclosed sum. The acquisition expands Autochek’s operations to 9 countries in East, West and North Africa.

CoaChess, a Tunisia-based gaming platform founded in 2021, has received $191,000 in pre-seed funding from Omicrone. The company utilizes AI-powered tools to make the game of chess accessible to players of all skill levels.

Solibra has sold its water bottling business which operates under the Awa and Cristaline brands. The Castel Group subsidiary, based in Côte d’Ivoire is refocusing on its core business. Financial terms were not disclosed.

Development Partners International, South Suez and DEG have acquired 100% of the Solevo Group from Helios Investment Partners for an undisclosed sum. Helios first invested in the specialty chemicals distribution platform in 2017. Solevo operates across eight countries in West and Central Africa.

Chekkit, a Nigerian anti-counterfeiting startup, has raised an undisclosed amount of funding from Adaverse and existing investors RTA, HoaQ, Launch Ventures and Blockchain Founders Fund.

AgDevCo has invested in a new joint venture between Agris and Granot to develop a 390 hectare avocado plantation at Agris’ Ndabibi farm in Naivasha, Kenya. The US$8m mezzanine loan by AgDevCo adds to its existing avocado investments in Tanzania and Mozambique.

AFC Equity Investment (Africa Finance Corporation (AFC)) has acquired 100% of Aker Energy AS from Aker Capital AS (50.79%) and The Resource Group (49.21%). This will give AFC a 50% stake in the Deepwater Tano Cape Three Points block offshore Ghana. The share purchase consideration has been structured as an earn-out deal.

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

AIIM targets NOA to overcome flood of load shedding inaction

Michael Avery
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AIIM targets NOA to overcome flood of load shedding inaction

The extent of South Africa’s ongoing electricity crisis was captured by Reserve Bank Governor, Lesetja Kganyago during his first press conference of the year, following the Bank’s decision to hike rates by another 25 basis points. Kganyago speaks with authority and breeds confidence, so when he said that South Africa’s prospects for growth were more uncertain than normal, in part due to extensive load shedding, pushing the bank to lower its GDP growth projections for the year to 0.3%, the market was paying attention.

However, the Governor hastened to add that a “material reduction in load shedding would significantly raise growth. There could also be higher investment in alternative energy sources as firms and households offset the impact of load shedding”.

As the energy industry continues to evolve, companies are looking for new ways to establish themselves as leaders in their field. One such company, NOA, is taking an innovative approach to scaling up its operations and establishing itself as a major player in the African energy market.

NOA has recently announced that it has entered into a partnership with African Infrastructure Investment Managers (AIIM), a leading investment management firm. Through this partnership, NOA will have access to new investment prospects in key African markets where AIIM already has a presence. This will allow NOA to expand its reach and become a regional energy solutions provider in areas of high energy demand across the continent.

AIIM agreed to provide initial equity funding of up to $90m, which will be used to deliver net zero energy solutions for Africa, and will be financed through a mix of equity provided by AIIM’s South African IDEAS Fund and the latest iteration of AIIM’s USD denominated pan-African investment fund, AIIF4.

NOA is a vertically integrated energy platform that provides net – zero oriented renewable energy solutions to customers in the commercial and industrial sectors of the economy. It has developed a comprehensive and innovative range of solutions for customers through the provision of large-scale wheeled energy generation utilising wind, solar and storage technologies. The investment will help strengthen AIIM’s position as one of the leading investors in South Africa’s renewable energy landscape, with projects representing over 1.9GW of solar and wind generation capacity.

NOA aims to develop, finance and operate a portfolio in excess of 1GW of renewable energy assets over time. The initial funding will be utilised to conclude the construction of existing projects and achieve financial close on projects amounting to almost 100MW. NOA will be launched by a team comprised of veterans of the South African renewable, commercial and industrial energy sectors, and is led by Karel Cornelissen, the former Chief Executive Officer of Energy Partners.

The transaction comes as the liberalisation of South Africa’s energy markets is accelerated by impending regulatory changes which permit self-generation without the need for a generation license, and the removal of size limits of such facilities, announced by President Cyril Ramaphosa in July 2022. These projects may now also be grid connected and sell to multiple customers through wheeling, the act of transporting electricity from a generator to a remotely located end-user through the use of an existing transmission and distribution system. Rapidly declining costs of renewable energy technology further enable NOA to provide its customers with renewable energy at competitive tariffs.

South Africa has a large and growing shortfall in energy availability. Between 30GW and 50GW of new capacity is likely to be required over the next 10 years if South Africa is to meet its nationally determined contributions under the Paris Climate Agreement, and to mitigate the current energy crisis.

Investment Director at AIIM, Ed Stumpf commented,

“South Africa is at a pivotal point in the evolution of its energy landscape, with the imminent retirement of ageing coal power stations, a significant energy sector infrastructure deficit, and increasing liberalisation of the market paving the way for an acceleration of investment in net-zero oriented businesses such as NOA.”

Karel Cornelissen, CEO of NOA, expressed his excitement about the acquisition, stating, “We are thrilled to be joining forces with AIIM. This partnership will allow us to accelerate our ambition to work with our clients on their journey to Net Zero, while also making a meaningful contribution to addressing South Africa’s current energy crisis.”

NOA’s innovative approach and strategic partnership with AIIM positions the company for growth and success in the competitive African energy market.

Michael Avery, is the editor of Catalyst

This article first appeared in Catalyst, DealMakers’ quarterly private equity publication.

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

United States and Africa: Building strong partnerships

James P Brien
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United States and Africa: Building strong partnerships

The United States (US) and countries in Africa are building strong partnerships that boost sustainability, empower local communities with a focus on opportunities for women and youth, and provide benefits for both African and US citizens. Recently, the US has made numerous announcements regarding cementing its strong ties with Africa via, for example, increased climate financing, infrastructure development support, food security initiatives, development of new innovation and technology, strengthening of healthcare systems, and reciprocal trade and investment initiatives.

At the US-Africa Leaders’ Summit in December 2022, a memorandum of understanding (MoU) was signed between the US Trade Representative and the African Continental Free Trade Area (AfCFTA) Secretariat to expand engagement and “promote equitable, sustainable, and inclusive trade; boost competitiveness; and attract investment to the continent.” It was also announced that the US intended to invest US$55 billion in Africa over the next three years, and that $15 billion would be deployed in “two-way trade and investment commitments, deals, and partnerships that advance key priorities, including sustainable energy, health systems, agribusiness, digital connectivity, infrastructure, and finance.”

In August 2022, a fact sheet issued by the White House noted that sub-Saharan Africa (SSA) played “a critical role in advancing global priorities to the benefit of Africans and Americans. It has one of the world’s fastest growing populations, largest free trade areas, most diverse ecosystems, and one of the largest regional voting groups in the United Nations. It is impossible to meet today’s defining challenges without African contributions and leadership.”
The White House further noted that its Africa strategy articulated the new US vision for a 21st century US-African Partnership and the “tremendous, positive opportunities that exist to advance shared interests alongside our African partners.”

CLIMATE FINANCE
Developing countries are among the most vulnerable in the world to the effects of climate change, especially with regard to adapting to weather extremes and finding solutions that address food insecurity and energy and water scarcity. The availability of climate financing to assist developing countries with the transition to a low-carbon, climate-resilient future was one of the key topics under discussion at last November’s United Nations Climate Change Conference (COP 27) in Egypt.

In a speech at COP 27, US President Joe Biden said that the US Emergency Plan for Adaptation and Resilience Fund (PREPARE) had already deployed $2 billion in financing to help developing countries prepare for climate change. He announced a $150 million down payment to support PREPARE’s adaptation efforts in Africa, including for the Accelerating Adaptation in Africa project that was launched by the US and Egypt earlier in 2022. Other US climate initiatives in Africa include expanding access to early warning systems, building capacity for African decision makers to accelerate climate adaptation, supporting locally led adaptation efforts, expanding access to risk-based insurance for the most vulnerable, mobilising private sector support, and supporting climate-smart food systems, as well as the ‘Advancing Climate Security Through Sahel-Climate Advocacy and Peacebuilding with Pastoralists’ initiative.

POWER AFRICA
Power Africa – a US government-led programme that focuses on addressing Africa’s access to electrical power – has provided significant support to African countries since its launch in 2013.

A US Agency for International Development (USAID) report shows that, since then, Power Africa has helped to bring more than 5,500 megawatts (MW) of cleaner and more reliable power generation and first-time electricity to 127,7 million people across sub-Saharan Africa. A White House fact sheet detailed how Power Africa had helped to close 145 power generation investments with a value of $24 billion. The programme is a partnership between the US government and the governments of Ethiopia, Ghana, Kenya, Liberia, Nigeria, Tanzania, and the private sector.

At the Summit, the launch of the Clean Tech Energy Network was announced as part of the Power Africa initiative. This is a collaboration between the US Government, US clean tech energy companies, and African energy stakeholders. Around $350 million is expected to be mobilised via this initiative. Further, it was announced that a $150 million public/private partnership has been operationalised to provide clean power to 10,000 health care facilities in SSA.

INFRASTRUCTURE FINANCE
At the G7 Summit in June 2022, it was announced that a $600 billion lending initiative, the Partnership for Global Infrastructure and Investment (PGII), would be launched to fund infrastructure projects in the developing world, with a particular focus on Africa. The G7 countries – Canada, France, Germany, Italy, Japan, the UK, and the US – explained that the PGII would help address the infrastructure gap in developing countries, with a core focus on sustainability.

At the same time, the US announced that as part of the PGII, it would mobilise $200 billion for developing countries over the next five years. This funding will be in the form of grants, financing and private sector investments. One of the priority pillars of this funding will be “tackling the climate crisis and bolstering global energy security through investments in climate resilient infrastructure, transformational energy technologies and developing clean energy supply chains across the full integrated lifecycle.” Some deals have already been announced, including a $2 billion solar energy project in Angola, and the building of multiple hospitals in Côte d’Ivoire.

TRADE AND INVESTMENT
In July 2021, the Biden Administration announced that it would renew the US Prosper Africa initiative, started in 2019, with a focus on increasing reciprocal trade and investment between the US and African countries. At the time, the US said that the initiative would focus on improving trade and investment in sectors such as infrastructure, energy and climate solutions, healthcare and technology. Seventeen US government agencies working as part of this initiative were given a mandate to, among other things, empower African businesses, offer deal support, and connect investors from the US with those in Africa.

Also noted at the renewed Prosper Africa launch was the intention to focus on projects that supported women, and small and medium enterprises in Africa. Under the Biden Administration, US engagement with African countries has focused on strengthening these trade and investment relationships in a strategic, cooperative and reciprocal way, with a vision of shared prosperity between Africa and the US.

At the Summit, Prosper Africa announced plans to boost African exports to the United States by $1 billion through investments and partnerships, and to mobilise an additional $1 billion in US investment in Africa.

TRADE
The US has often expressed its support for AfCFTA, the Africa-wide free trade zone, stating that it wants to see the growth of Africa’s economic power in the world. All future trade agreements signed between the US and African countries will have to align with AfCFTA’s trade stipulations and, considering the Biden Administration’s environmental stance, new agreements will likely also include climate change provisions and tariffs on high-carbon imports.

The Administration is also focusing on trade agreements that don’t disadvantage US businesses and consumers. For example, the US-Kenya Strategic Trade and Investment Partnership (STIP) was signed in July 2022. The agreement outlined the enhanced engagement and high standard of commitment between the two countries, and focused on increased investment and sustainable and inclusive growth that will be of benefit to both countries’ citizens and businesses. The agreement also included the intention to support regional economic integration in East Africa.

Further reciprocal bilateral and regional trade agreements between the US and African countries are expected to be signed in the near future. Such agreements are expected to eventually replace the non-reciprocal African Growth and Opportunity Act (AGOA), which allows duty- and quota-free exports from eligible African countries into the US, and which is due to expire in 2025.

At the Summit, the Biden Administration noted that since 2021, the US Government has assisted in closing more than 800 two-way trade and investment deals worth around $18 billion across 47 African countries. In addition, the value of private investment deals from the US into Africa since 2021 is $8,6 billion. According to a White House Fact Sheet, the value of goods and services traded with Africa as part of the PGII, Prosper Africa and Power Africa totalled $83,6 billion in 2021.

Further, the Export-Import Bank of the United States (EXIM) announced at the Summit that it had signed a number of MoUs with African partners, including a $500 million MoU with the African Export-Import Bank (Afreximbank) to support diaspora engagement and strengthen EXIM’s commercial ties to the continent, as well as other MoUs focusing on trade, and the support of infrastructure, transportation, digital technology and renewable energy projects.

INVESTMENT
US investment in Africa has grown in recent years. According to Refinitiv data, Prosper Africa’s focus on improving investment between the two regions appears to be working. The value of M&A transactions in SSA, where the acquirer or the acquirer’s ultimate parent were based in the US, was $3,6 billion in the 2022 year to date, with 94 deals announced in 2022. The only time in the last few years that the deal value has been higher was in pre-pandemic 2017, when 58 deals were announced, valued at $4,9 billion. In 2021, the value of deals from US acquirers into Africa was slightly lower than in 2022, at $3,3 billion, but the volume was higher, with 97 deals announced. In 2020, both the volume and value of deals were lower, with US-based acquirers announcing $1,5 billion in deals in SSA, spread over 42 deals. This was much lower than in 2019, when $2,9 billion in US-originated M&A deals were announced in SSA, spread over 38 deals. The volume of deals was higher in 2018 than in 2019, but the value was lower – 55 deals valued at $2,4 billion were announced that year. With both the volume and value of US M&A deals in Africa climbing once again, an increasing number of US investors are clearly looking to launch and grow African operations.

The US focus on increased engagement and continued trade and investment in Africa is good news for the continent. Africa needs strong partnerships to address its development challenges and reach its full potential, and it has a solid ally in the US. The numerous US-Africa initiatives and partnerships that have launched as part of the US’s renewed, sustainable and reciprocal approach to Africa are leading to a plethora of opportunities for both regions.

O’Brien is a Partner, Baker McKenzie Chicago, and formerly Chair of the Sub-Saharan Advisory Committee of the Export-Import Bank of the United States (EXIM).

This article first appeared in the DealMakers AFRICA 2022 Annual.

DealMakers AFRICA is the continent’s quarterly corporate finance publication.
www.dealmakersafrica.com

Ghost Bites (British American Tobacco | Exemplar REITail | Glencore | Purple Group | Raubex | TWK | Zeder)

The Finance Ghost
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Ghost Bites (British American Tobacco | Exemplar REITail | Glencore | Purple Group | Raubex | TWK | Zeder)

British American Tobacco: the Chair’s address (JSE: BTI)

It’s useful to assess the narrative here

As is standard procedure at British American Tobacco (BAT), the focus is on the transformation of the business. If ever you wanted to see a goldmine for ESG consultants, look no further than BAT. The corporate imagery will make you feel like you’re reading about a group that builds schools in Africa, not one that produces a way for people to hurt themselves.

A version of this argument can be made for the liquor companies as well. At the end of the day, it comes down to personal preferences in terms of what you will or won’t invest in.

At BAT, the New Category business is where the company scores brownie points. Supposedly healthier than cigarettes, these vape and associated products are big on ESG progress and low on profitability – the goal is for this segment to be profitable in 2024.

Make no mistake: the core business is tobacco. The rest is only 15% of revenue, with a goal to grow from 22.5 million customers of “non-combustible products” to 50 million customers by 2030.

That core business is a cash cow of note, which is why people buy shares in BAT. Adjusted operating margin improved by 150 basis points in the 2022 financial year and there was a 100% operating cash conversion rate. 100%! This is how the company managed to return £6.9 billion to shareholders in the form of dividends and buybacks.

Smoking isn’t exactly a fast-growing hobby (thankfully), so the company needs to drive growth in earnings by becoming more efficient. In the coming year, the goal is to increase diluted EPS by mid-single digits on a constant currency basis. Over the next few years, the strategic focus is on reducing the number of regional structures and business units, creating a lower cost base.

Thus far in the 2023 financial year, the US market has been problematic. The premium segment in that country has been under pressure and BAT has had internal inventory issues with the implementation of the global SAP platform. The second half of the year is expected to be better than the first half.

Guidance for 2023 has been reaffirmed, which would’ve been the comment from the Chairman that drove a 3.7% increase in the share price.

Exemplar REITail grows earnings (JSE: EXP)

As the too-cute name suggests, this is a retail property fund

There is practically no liquidity in Exemplar REITail, so there isn’t much you can do with this trading statement other than add it to your knowledge base on the current performance of local property.

This makes it useful for anyone with a position in retail property, as the fund has indicated growth in its distribution per share of between 15.6% and 20.0% for the year ended February 2023.

The fund owns retail properties in townships and rural areas, so this is different exposure to what you might get from the likes of Hyprop.

Glencore needs to get a new dating app (JSE: GLN)

Yet another attempt has been made to seduce Teck shareholders

Flowers. Chocolates. A cash payout for the fossil fuels side of the business. Glencore has tried it all, yet the board of Teck Resources in Canada just won’t go with Glencore to the dance.

In an act of defiance and desperation, Glencore has released an open letter to Teck shareholders. This is a bit like going to the parents of your desired date and asking them to talk some sense into their offspring.

This letter isn’t an improvement on the revised offer. Instead, it is designed to get shareholders to put pressure on the board to consider the Glencore proposal. To be fair to Glencore, there are elements of the proposal that shareholders in Teck should pay attention to.

For example, unlike the current restructuring proposal at Teck, the Glencore structure would achieve a full separation of “CoalCo” and offer a cash option in lieu of that exposure. There are also synergies (like in every deal ever – easier said than done) and there is the creation of a scaled “MetalsCo” – the transition metals business.

Here’s the interesting thing: if Teck shareholders vote down the current board proposal on 26 April, then Glencore is willing to make an offer directly to shareholders. That would be a full-on hostile takeover, or arranged marriage to keep our analogy going!

It’s also worth noting a comment from Glencore that the company is willing to improve the terms of the proposal, provided there is engagement with the Teck board.

I actually need to quote this paragraph verbatim, as this is the beauty of top corporate financiers operating at full flight:

Glencore is prepared to meet anytime and anywhere that is suitable for the Teck Board and/or its management team to explore our proposal. If the Proposed Teck Separation proceeds, the Glencore proposal cannot proceed and potential future offers for Teck Metals would likely look very different given the friction costs, the complexity of the two companies, the time delay involved and the impact of two new management teams and boards.

In addition to what I think is a rather brilliant letter, Glencore also released a presentation that you’ll find here if you are interested.

EasyEquities opens the door to 70 million Filipinos (JSE: PPE)

The ever-faithful Purple Group investors rewarded the company with a 3.9% gain

Purple Group has built the EasyEquities client base in several ways, with partnerships high on the priority list. When entering a new market, a partnership is practically a necessity. It’s just too hard and risky to start from zero.

Back in August 2022, the company gave the market an indication of a partnership in the Philippines. It’s taken a few months to get it across the line, with details now announced on SENS. The partner is GCash, the largest and fastest growing mobile wallet in the Philippines. Astonishingly, GCash has over 70 million active clients. That’s bigger than the population of South Africa!

The activation strategy is a fantasy investing game launching in June 2023, which will educate Filipinos on the US market – the area of focus in this partnership.

At this point, there’s no confirmation of when the real product will launch. The regulator in the Philippines is playing this carefully, which makes sense. It also means that if Purple Group can get this right, there’s an instant moat. It’s clearly not easy to enter this market based on the time taken thus far.

Raubex is making money everywhere – even Australia (JSE: RBX)

Full year HEPS will be much higher than in the previous year

Raubex is showing strong growth in the year ended February 2023, with HEPS expected to be between 25% and 35% higher. That’s a proper result in this environment.

There were a number of positive contributors. The decision to diversify into Australia is working out, which isn’t something you’ll hear often from South African corporates. The Australian business contributed 20% to group operating profit.

But the major contributor was the flagship project at the Beitbridge Border Post in Zimbabwe, a project that was awarded at the end of 2020.

In the Materials Handling and Mining division, it sounds like the Bauba Resources acquisition is going well. The turnaround strategy has been successful and additional working capital from Raubex has had a positive impact.

In the Roads and Earthworks business, Raubex has been awarded R2 billion in SANRAL contracts since October 2022 and the company is happy with the activity in tender awards.

Construction Materials suffered most from load shedding and inflationary pressures. This had a negative impact on margins, as one would expect. Ironically, the slow roll-out of IPP renewable energy projects has negatively impacted performance there as well. The group has shifted to concentrate on private renewable projects.

The share price increased by 5.4% off the back of this announcement.

TWK is proof of how cyclical fertiliser demand is (CTSE: 4ATWK)

Read that ticker carefully: TWK is listed on the Cape Town Stock Exchange and A2X, not the JSE

If you’ve been paying attention to your Ghost Mail mailers, you’ll know that TWK is due to appear on Unlock the Stock on 20th April. This will give investors great insight into the agriculture industry and particularly fertiliser, which is the part of the business that broke in the six months to 28 February 2023.

Group revenue from continuing operations increased by 7.6%, but EBITDA fell by 13.1%. Basic earnings per share fell by almost 21%.

The Timber segment wasn’t the problem child. Far from it, in fact, with revenue up 28.7% and EBITDA up 21.6%. There was some margin compression here, but strong demand from pulp manufacturers continued to drive growth in wood chip exports and local timber sales.

Retail and Mechanisation is a totally different story. Revenue fell by just 0.3%, yet EBITDA tanked by 72.6% to a margin of just 1.8%. That revenue number was driven by many sales of fertiliser below cost just to reduce stock levels, so gross margins fell over and load shedding didn’t help either. The fertiliser market is affected by many global factors, so this is a risky and cyclical game.

The Financial Services segment grew revenue by 27.3% and EBITDA by 35.8%. It’s very unusual to use EBITDA as a measure in financial services, but this is primarily an insurance business rather than a lending business.

The Grain segment increased revenue by a lovely 57.9%. It didn’t help much, with EBITDA down by 48.2% under immense cost pressure.

The Motors segment saw a drop in revenue of 36.1%. EBITDA fell by 70.1% in a year that this segment will want to forget. The floods at the Toyota manufacturing facility were a major contributor to stock shortages and poor performance.

In Zeder’s results, you need to read carefully (JSE: ZED)

The drop in NAV per share isn’t nearly as bad as it looks

Zeder is an investment holding company, so net asset value (NAV) per share is the right measure. It has dropped by 44.2% in the year ended February 2023, but there are good reasons for this. The company has been on a value unlocking journey, so it has deliberately made itself smaller.

For example, the unbundling of the stake in KAL Group (previously Kaap Agri) contributed a drop of R1.03 per share. There was also a special dividend of R1.03 per share. Guess what? The drop in NAV per share was R2.06, so this explains the entire decrease.

This also means that the rest of the business didn’t grow, which obviously isn’t good. There seems to be significant uncertainty, with supply chain and load shedding considerations. A dividend has not been declared for this period.

Zeder is engaging with third parties regarding the remaining portfolio investments.

Little bites:

  • Director dealings:
    • A director of a subsidiary of MTN (JSE: MTN) has sold shares worth over R5.2m.
    • Directors of Old Mutual (JSE: OMU) collectively bought shares worth nearly R2.1m.
    • An associate of a director of Ascendis Health (JSE: ASC) has bought shares worth R203k.
    • Weirdly, a director of Dis-Chem (JSE: DCP) bought shares worth R10k without clearance. Finger trouble?
  • Chrometco (JSE: CMO) is in business rescue and the business rescue plan was published a few weeks ago. The meeting of creditors was due to take place on 18th April, but the Industrial Development Corporation (the largest creditor) proposed an adjournment to consider the plan in more detail. The meeting was adjourned to 16th May.

Unlock the Stock: Astoria

The Finance Ghost
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Unlock the Stock: Astoria

Unlock the Stock is a platform designed to let retail investors experience life as a sell-side analyst. Corporate management teams give a presentation and then we open the floor to an interactive Q&A session, facilitated by the hosts.

This year, Unlock the Stock is delivered to you in proud association with A2X, a stock exchange playing an integral part in the progression of the South African marketplace. To find out more, visit the A2X website.

We are also very grateful to the South African team from Lumi Global, who look after the webinar technology for us.

In this seventeenth edition of Unlock the Stock, Astoria joined us for the first time to talk about the investment portfolio that offers exposure to a range of sectors through both listed and unlisted investments. For everything from specialist retail through to marine diamond operations, Astoria has a lot to talk about!

I couldn’t join this event unfortunately, but my usual partners Mark Tobin of Coffee Microcaps and the team from Keyter Rech Investor Solutions did a wonderful job with it. Watch the recording here:

Ghost Bites (Afrimat | Anglo American | Capitec | Copper 360 | Ninety One | Sasol)

The Finance Ghost
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Ghost Bites (Afrimat | Anglo American | Capitec | Copper 360 | Ninety One | Sasol)

Afrimat’s earnings dip but results are still solid (JSE: AFT)

No debt, no stress

Afrimat’s HEPS dropped in the year ended February 2022. With a decrease of between 13% and 18%, the expected range is 445.2 cents to 472.3 cents. Still, there’s a lot for shareholders to feel good about here.

With no debt on the balance sheet and a highly cash generative model, Afrimat has sufficient capital to keep growing off internally-generated cash. This is a wonderful thing to look for in a long-term investment, as your money is compounded by the management team each year.

Speaking of growth, the company is looking to the Jenkins iron ore mine and Nkomati anthracite mine as significant contributors to growth in the next financial period. The ramp-up strategy is going to plan.

Here’s the real surprise though: the announcement notes that the allocation of trains from Transnet is becoming more consistent. Can it be? Are we finally getting a better railway service? It would at least help cushion the blow to the economy from our lack of electricity, though I would be highly cautious in extrapolating this comment to other mining groups that have struggled with Transnet.

If you’re looking for reasons not to invest in Afrimat, one of them would be the overall environment in South Africa and the lack of investment in infrastructure. Afrimat is a major supplier to the construction industry and there isn’t much construction without consumer confidence.

It’s less chilly in Chile for Anglo American (JSE: AGL)

The environmental permit application for Los Bronces has been approved

An approval of the Los Bronces project puts Anglo American in a great position in one of the world’s largest copper mines. This is a multi-billion dollar project to develop the next phase of the existing open pit, replacing future lower grade ore with higher grade ore from a new underground section of the mine.

There has been a huge focus on environmental protection in the design of the project, yet it was still difficult for Anglo to get this approval across the line. The project will now move through its pre-feasibility stages.

Is Capitec running out of puff? (JSE: CPI)

Share price action over the past year is sending a warning

Obviously, when viewed in isolation, 15% growth in headline earnings per share (HEPS) is a commendable outcome. But in investing, we can never view growth in isolation. It has to be viewed in the context of the valuation, which is what investors are paying for that growth.

With 20.1 million active clients, there’s no denying that Capitec has built a stunning business. At some point though, it starts to mature. There are also impairments to worry about, which came through strongly in the year ended February 2023. With statistics from the user base like spending on groceries increasing by 8% and fuel up by 16% despite income only growing by 4%, it’s not surprising to see the credit loss provisions increase.

Net lending, investment and insurance income increased by 14% to R17.2 billion. Net transaction and commission income grew 9% to R11.5 billion. These are the major income lines, with funeral plans up 58% to R1.4 billion deserving an honourable mention. Thanks to other once-offs in the base year, income from operations was only up by 12% to R30.3 billion.

Below that line, we find a whopping 80% increase in impairments to R6.3 billion. After that impact, net income only increased by 2%.

So, where did the jump in HEPS come from? Operating expenses fell by 5% despite the inflationary environment, saving the result and driving a 15% increase in HEPS. This saving came from lower incentives to staff due to slower income growth. Employee expenses fell by 16%, which literally threw this result a lifeline as other operating expenses grew by 10%.

This year, Capitec didn’t grow its earnings because of a great revenue performance. It grew earnings because staff earned much smaller bonuses than in the prior year. I don’t know about you, but I wouldn’t pay this valuation multiple for that story.

Copper 360 enjoyed an oversubscribed offer (JSE: CPR)

The private placement was clearly successful

The right investors were clearly on the invite list for the Copper 360 listing party. This is not an IPO in the traditional sense, as there was no offer to the public. Instead, you had to be in the correct little black book to get a slice of the action.

Even those in the black book won’t get the full allocation they wanted, as the private placement was 1.3 times oversubscribed. The company managed to raise R152.5 million at R4.00 per share.

The company will be listed on the JSE from 21 April 2023.

Ninety One reports another drop in AUM (JSE: N91)

These aren’t easy times for asset management firms

Ninety One certainly isn’t alone in its struggles. We’ve seen some tough numbers from competitors as well, ranging from those who are focused on asset management through to the likes of Quilter who have large distribution businesses.

Ninety One’s assets under management (AUM) at 31 March 2023 was £129.3 billion. This is down from £132.4 billion at the end of December 2022 and well down from £143.9 billion a year ago.

Results for the year ended March 2023 will be released on 17 May 2023. With a drop in AUM over the year, they probably won’t make for delightful reading.

Sasol refinances its dollar debt facilities (JSE: SOL)

Debt providers lined up to lend money to Sasol

In the process of refinancing its dollar-based banking facilities, Sasol was targeting a facility size of $2.5 billion, but raised $2.97 billion in the end because of significant demand from lenders. 14 banks committed to the refinancing, so Sasol is a far more appealing proposition these days vs. years gone by.

The new facility is a $1.99 billion revolving credit facility and a $0.98 billion term loan facility, both with a five-year maturity and two extension options of one year each.

Little Bites:

  • The former CFO of Tongaat Hulett (JSE: TON), Murray Munro, has been publicly censured by the JSE. He cannot hold the office of a director or officer of a listed company for a period of 10 years. I’m sure what stings the most is the R6 million fine for his actions. Munro challenged the JSE decision and achieved a suspension of the payment of the fine, but the rest of the punishment stands.
  • After the change of control caused by its recent corporate action, Shaftesbury Capital (JSE: SHC) was on the receiving end of a put option from certain bond holders. All the Chinatown Bond bondholders decided to put their bonds back to Shaftesbury and 99.9123% of the Carnaby Bond bondholders did the same. Shaftesbury exercised its option to take out the remaining Carnaby bondholders as part of this process. The redemption of the bonds was funded in full by utilisation of an existing loan facility agreement.
  • Clientele Limited (JSE: CLI) has added a highly experienced director to the board. Herschel Mayers has joined as a non-executive director, an important appointment as he previously served as CEO of Discovery Life Limited and Vitality Life Limited.
  • Buffalo Coal (JSE: BUC) has received approval from shareholders to take the company private in line with press release that came out in March. The company will disappear from our market in mid-April. I’m not sure anyone will miss it.
  • Chrometco (JSE: CMO), currently suspended from trading on the JSE, has announced a sale of mining rights to Mahlopi Metals Group. The disposal price is R35 million. This is an unutilised asset and the sale will help fund the operations of the company. Though this sounds like a good deal at first blush given the state of play at the company, the value of the rights as at the end of March was R90.1 million! This is a Category 2 transaction and shareholders won’t be asked to vote.
  • Another suspended mess is Rebosis Property Fund (JSE: REB), where they can’t even get emails to work properly. In a truly embarrassing announcement, the company had to tell the market that the email address for the public sale process didn’t work between 11 and 12 April. Those who submitted interest during those days will have to resubmit.
  • Listed zombie W G Wearne (JSE: WEA) has been suspended since July 2018 because it hasn’t released financial statements since the 2018 financial year. The group is playing catch-up, a process that is expected to be completed by October 2023. The group is also trying to sell certain assets to restructure its debts.

Ghost Bites (AH-Vest | Altron | Brikor | Investec Property Fund | Sirius)

The Finance Ghost
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Ghost Bites (AH-Vest | Altron | Brikor | Investec Property Fund | Sirius)

AH-Vest gives details around the HEPS drop (JSE: AHL)

There is more liquidity in the sauce than in the stock

There is practically no trade in AH-Vest, so I’ll keep this brief. The maker of AllJoy sauces is suffering under load shedding, with revenue up 2.2% in the six months to December 2022 and HEPS down by 68.5%.

Gross margin wasn’t too bad, down from 37.7% to 36.6%. A 15.8% jump in operating expenses caused the drama, with shipping and distribution costs as major drivers. Higher interest rates drove a 28.8% increase in finance costs.

Working capital also came under pressure, with receivables up by 42.9% and trade payables only up by 26.3%. The company makes it sound like much of this is seasonal.

Importantly, there are major projects underway to alleviate the dependency on Eskom.

Altron: read those adjustments very carefully (JSE: AEL)

A 4.9% drop in the share price tells you what the market thought

If an announcement confuses you, one of the best signs of the real story is the market’s response to the update. You always need to check the performance of the index as well, as what you’re looking for is the movement in the company share price vs. the broader market. On a day when the JSE All Share closed only 0.2% lower, a 4.9% drop at Altron sends a message.

Within the first three lines of the “Group Overview” section of this trading statement, Altron already refers to “normalising” the “once-off adjustments” – oh dear.

There’s more corporate speak just a few lines down, with Netstar and Altron Systems Integration (ASI) implementing their “accelerated performance improvement strategies” – the company hopes that this will make shareholders feel better about EBITDA margin compression at group level.

The once-off adjustments are a joke, bluntly.

The first one is a provision of R134 million raised against an amount owed by the City of Tshwane, which is currently in an arbitration process. It’s nonsense to raise a doubtful debts provision and then imply that the entire thing is an unfortunate adjustment – if you do business with the public sector, this is part of life.

The second adjustment is even better, with R31 million in impairments of inventory pertaining to a project that ended up being smaller than in the original tender. In other words, Altron overstocked the contract and wants everyone to casually ignore that. This goes straight to cost of sales, dear Altron.

The final adjustment relates to R104 million worth of impairments on Altron Document Solutions, the sale of which fell through in this period.

It’s therefore little wonder that the market focused on actual earnings, with HEPS expected to drop by between 14% and 32%. In case you’re wondering, those adjustments imply adjusted HEPS growth of between 8% and 28%.

Looking deeper, Altron Security achieved double-digit growth in EBITDA. If you include the acquisition of LawTrust, revenue and EBITDA in that business has more than doubled. Altron Karabina grew revenue and EBITDA by double digits as well. ASI grew revenue by double digits but put in a “disappointing” EBITDA performance for the year, which in my books means EBITDA decreased year-on-year. The announcement doesn’t confirm or deny this.

In Netstar, revenue grew by double digits and EBITDA was flat, leading to the appointment of a new managing director in the business. The other businesses in the Own Platforms segment include FinTech (double-digit growth in revenue and EBITDA) and HealthTech (single-digit growth in both).

In Managed Services, revenue was up by double digits and EBITDA was “negatively impacted” by provisions – specifically the City of Tshwane issue and the tender for which there was too much inventory. I refuse to even entertain that attempt to hide real business risks as once-offs.

Finally, Altron Arrow achieved double-digit revenue growth and more than doubled EBITDA.

Overall, it sounds to me like Altron is doing well in most areas except for public sector work in Managed Services. Perhaps the market will be more forgiving in days to come, but the initial reaction was anything but positive.

The potential offer for Brikor at 17 cents per share is imminent (JSE: BIK)

Many have been caught out, with a 15% drop in the price to get to 17 cents on Monday

Nikkel Trading has now built up a stake of 34.2% in Brikor based on purchases from major shareholders at 17 cents per share. These purchases were pre-agreed with those shareholders and there is an agreement in place to take the total stake to 67.7%.

This is clearly a change of control, which necessitates a filing to the Competition Commission. This filing is expected to be made in the next few days. Importantly, a move through 35% also triggers a mandatory offer, so it’s likely that Nikkel Trading will end up with more than 67.7% in the company.

It will be interesting to see how many shareholders take advantage of this liquidity event.

Investec Property Fund releases the ManCo internalisation circular (JSE: IPF)

BDO reckons that the terms are fair to shareholders

In case you missed my previous rants about the property find and ManCo internalisations, here’s a brief synopsis:

  • A property fund has a management team, like other companies
  • Unlike other companies, the management team earns a fee based on assets under management, so the fund can never achieve economies of scale as the fees grow along with the assets
  • Unlike other companies, that management team eventually gets bought out at a fat multiple to the annual management fee, thereby “internalising” a management team that should never have been externalised to start with
  • In summary, shareholders get fleeced and the management team ends up fabulously wealthy

There have been many such examples on the JSE. The latest one is Investec Property Fund, with the circular using all the tricks in the book to make shareholders think this is a great idea.

For example, the circular quotes a R74 million saving in net management fees per annum after costs. It also highlights that the loan-to-value ratio will be largely unchanged, thanks to sales of properties to pay a big chunk of the proposed amount.

Don’t worry, dear shareholders – we plan to sell off properties to help pay the management team, rather than raise new debt for it.

The price is R850 million with an earn-out of R125 million based on this hotshot management team needing to grow assets under management at a rate that exceeds 2% per annum. R390 million is funded by property sales, with R260 million payable in cash up-front and R200 million then payable over two years. That covers off the R850 million fee.

The circular doesn’t point out that the effective earnings multiple on this deal is 11.5x. What would your response be if a non-property company approached you as a shareholder and asked if 11.5 years worth of management costs can be paid up-front?

BDO Corporate Finance was appointed as independent expert and they seem to think that the deal is fair to Investec Property Fund shareholders. Of course, they are basing this off a valuation of a management contract that is already in place, which is different to opining on whether the concept of a property ManCo internalisation is fair. In case you’re wondering, they’ve been paid R450k to act as independent expert here. BofA Securities is acting as Financial Advisor, pocketing a delicious R20.3 million in fees.

Holders of 54.1% of the voting shares (i.e. excluding those held by Investec) have already confirmed an intention to vote in favour of the transaction. The pigs are at the trough because institutional shareholders allow it.

Sirius believes it has met market expectations (JSE: SRE)

The share price is down over 21% in the past 12 months – I did warn you about the valuation!

I have a very simple rule when it comes to property funds: don’t buy them at a premium to net asset value (NAV) per share. It rarely works out well. Sirius was a particularly strong example during the pandemic, trading at a silly premium to NAV that never made sense to me. Here’s the pain that followed:

I deliberately included a long-term chart here because Sirius deserves credit for the clear growth trend. I also wanted to demonstrate just how daft the pandemic move was.

In a trading update for the year ended 31 March 2023, Sirius has noted a 7.7% increase in the like-for-like rent roll. This is solid, as it shows that Sirius can keep its revenue growing in line with inflation. Cash collection has been strong and occupancy rates look good.

Keep a close eye on the balance sheet, as the group is still enjoying a weighted average cost of debt of 1.9%. That won’t be the case anymore when debt is refinanced, although 90% of debt has a maturity in excess of three years. The good times will continue for a while longer.

Approximately €45 million in capital was recycled, with disposals and acquisitions of similar total value. The investment focus was in Germany whereas the disposal focus was on properties that have little potential upside.

In the interests of a balanced view, Sirius did managed to sell six properties at a 25% combined premium to book value. I would just be careful of extrapolating these disposals to the entire portfolio to justify a group premium. Remember, they will only sell properties where it makes sense to do so. The market never finds out about any offers that weren’t accepted.

Results will be announced on 5th June.

Little Bites:

  • Director dealings:
    • Des de Beer has bought more shares in Lighthouse Properties (JSE: LTE) worth almost R1.2m.
    • A director of MAS (JSE: MAS) has bought shares in the property fund worth R780k.
  • Australian courts have sanctioned BHP’s (JSE: BHG) scheme to acquire 100% of the shares in OZ Minerals. The effective date is 2 May 2023.
  • After 12 years on the board of ADvTECH (JS: ADH), Chris Boulle is retiring as chairman. He’s going to hang around until the 2024 AGM and will then move on. I was at the rather entertaining AGM around the time that Curro was trying to acquire ADvTECH and I remember seeing Boulle in action, dealing with angry people from PSG on one side and far more frightening (and angry) mothers from the schools on the other.
  • The revolving door at Luxe Holdings (JSE: LUX) continues, with the company secretary now resigning.

Ghost Bites (AH-Vest | Industrials REIT | Grand Parade | Rex Trueform | Sappi | Universal Partners)

The Finance Ghost
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Ghost Bites (AH-Vest | Industrials REIT | Grand Parade | Rex Trueform | Sappi | Universal Partners)

No joy for AllJoy from Eskom (JSE: AHL)

AH-Vest has flagged an ugly drop in HEPS

Even a big ol’ helping of tomato sauce won’t make shareholders feel better about this one. AH-Vest is the food manufacturing business responsible for AllJoy. There is NoJoy during loadshedding, with a substantial impact on food production.

Although generator capacity was increased during April 2023, the results for the six months to December 2022 were ruined. Eskom is only partly to blame here, with other factors like supply chain costs playing a role. Sadly, none of these issues have disappeared in 2023. If anything, they have worsened.

For the interim period, AH-Vest has flagged a 68.5% drop in HEPS.

And in case you’ve never heard of this company and you are now questioning your market knowledge, take solace from the fact that the market cap is only R21.4 million. There’s more liquidity in the sauce than in the stock.

Blackstone makes it formal with Industrials REIT (JSE: MLI)

The terms of a cash offer of 168 pence per share have been announced

Operating through a new entity called Sussex Bidco, Blackstone has formalised its offer to the shareholders of Industrials REIT. In practice, this means that terms have been announced.

The price of 168 pence per share is a premium of 40.6% to the one-month volume weighted average price (VWAP). The focus on becoming a pure-play UK multi-let industrial fund has paid off handsomely, attracting a substantial offer for shareholders. The independent board is very happy with the offer, agreeing unanimously to recommend it to shareholders.

Blackstone is the world’s largest alternative asset manager, with $975 billion in assets under management (AUM). Of that huge number, $326 billion is in the real estate side of the business. With a market cap of R11.1 billion, Industrials REIT is literally a rounding error for Blackstone at group level. It just shows how difficult it can be to materially move the needle in a portfolio the size of Blackstone’s.

For shareholders in Industrials REIT though, this is a cash bonanza of note.

A new sheriff in town at Grand Parade (JSE: GPL)

When you control the company, you call the shots

With a stake of 53.65% in Grand Parade Investments after its mandatory offer, GMB Liquidity Corporation now controls the group. Gregory Bortz (spot the initials there) is the new CEO of Grand Parade, taking the top job from 2 May 2023.

What are his plans for the group? Anything is possible. Bortz seems to be heavily involved in the local horseracing industry, so he’s an interesting guy who seems to know how to mix business with pleasure. Grand Parade adds gambling stakes to his portfolio, with the food assets now out of the way.

Rex Trueform posts much stronger results (JSE: RTO)

You need to read carefully though, as acquisitions were a major contributor

When a company posts a huge jump in performance, it’s always worth checking whether there were major acquisitions. Remember, if you buy businesses whether for cash or shares, you’ll be bringing far more revenue etc. into the group. Whether or not that is actually beneficial for shareholders requires a careful read.

At Rex Trueform, the core retail business posted solid growth in revenue but also experienced a substantial deterioration in gross margin due to tough consumer conditions. Gross margin fell from 53.5% to 48.5%, so the jump in revenue was blunted to a (still useful) 16.5% increase in gross profit in the core business.

There was plenty of action in other revenue lines, with media and property acquisitions bringing new sources of revenue into the group.

The net result on HEPS is encouraging to say the least, up by 114.9% to 270.8 cents. The net asset value (NAV) per share increased by 33.4% to R18.74, so the closing price on Friday of R10.09 reflects a substantial discount to NAV.

Marcel Golding’s group is clearly making progress in diversifying its sources of revenue. You can also look at African and Overseas Enterprises Limited (JSE: AOO), part of the same stable.

Sappi will need to be stoic after sale to Aurelius fails (JSE: SAP)

A new buyer is needed for the European graphic paper mills

Perhaps the Roman-emperor inspired name was a giveaway that things might get hectic here. Aurelius has given the thumbs down to the deal with Sappi, causing the latter’s share price to drop nearly 5.8% on this news.

Aurelius was due to acquire three European graphic paper mills from Sappi. One of the conditions precedent was that the parties would agree a separation and transitional services plan. They couldn’t agree in time, so the deal has fallen through.

This leaves Sappi with three mills that it doesn’t want to own anymore. I’m sure there are a few investment bankers who are already on the phone to potential alternative buyers.

Universal Partners: no financial cavities here (JSE: UPL)

The investment in Dentex worked out beautifully

Let’s face it: dentistry isn’t sexy. In my experience, it’s downright unpleasant. The dentist is one thing, but the sadistic oral hygienist is the one to really watch out for.

Personal traumas aside, Universal Partners has proven that investing in an odd industry can sometimes work very well. It’s not easy to scale something like dentistry, so this isn’t an obvious choice for professional investors to get involved in. As astute investors know, you can find excellent returns in unusual places.

Universal Partners invested £32.3m since 2017 to build out the Dentex business. In a deal with Portman Dental Care, the company will get 94% of that investment value back in the form of a cash payout and will retain exposure to the enlarged, merged entity via shareholder loans and equity. The cash risk is off the table and the value of the investment has more than doubled over the past few years. Considering that there was a pandemic in the middle of that period that would’ve done damage to the dentistry industry, that’s impressive.

The combined business will operate over 350 practices in the UK and will have a presence in 5 European countries as well.

Little Bites:

  • Director dealings:
    • A prescribed officer of Standard Bank (JSE: SBK) has sold shares worth just over R2m.
    • An associate of a director of Ascendis Health (JSE: ASC) has bought shares worth R36k.
  • There’s more bad news at Sibanye-Stillwater (JSE: SSW). Fatalities are still a reality in mining as the operations are risky across the industry. Still, it’s unusual to read of multiple fatalities. Sibanye is dealing with a tragic incident that saw four contractors killed during the installation of a head pulley of conveyor infrastructure. A fifth contractor has been seriously injured. Naturally, a full investigation is underway.
  • Gemfields (JSE: GML) has finalised the exchange rate for its dividend. 52.56438 cents per share will be paid to local shareholders. For reference, the share price closed at R4.10 on Friday, so this is a huge yield that reflects the risk that the market is pricing into the business.
  • After being forced to postpone its analyst presentation due to the CEO suffering an accident, Metair (JSE: MTA) has announced that the presentation will take place on 20 April.

Ghost Wrap #20 (Aveng | PSG Konsult | De Beers + Richemont | Alphamin | Universal Partners | Stor-Age | Sappi | Glencore)

The Finance Ghost
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Ghost Wrap #20 (Aveng | PSG Konsult | De Beers + Richemont | Alphamin | Universal Partners | Stor-Age | Sappi | Glencore)

Welcome to Ghost Wrap. It’s fast. It’s fun. It’s informative.

In this week’s episode of Ghost Wrap, we cover:

  • Aveng is a nasty reminder that every construction company is just one bad project away from financial disaster.
  • PSG Konsult is an excellent business, growing AUM strongly in a year that was poor for markets. As an added kicker, the dividend payout ratio is higher too!
  • Within Anglo American, De Beers noted that demand for luxury goods in China has picked up. This was echoed internationally by LVMH during the week, with an obvious read-through benefit for Richemont.
  • Alphamin reported an exceptional quarter, driven by solid production and a major jump in tin prices.
  • Nobody likes the dentist, except perhaps Universal Partners based on the returns generated in Dentex.
  • Stor-Age has put together a smart deal in the UK that optimises return on equity.
  • Sappi needs to find a new buyer for its three European graphic paper mills, after the sale to Aurelius fell through.
  • Glencore is still trying to woo the board of Teck Resources in Canada, with a revised offer still not finding favour.

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.

Listen to the podcast below:

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