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Ghost Bites (Afrimat | Lighthouse | Ninety One | Purple Group | Trustco)

The Finance Ghost
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Ghost Bites (Afrimat | Lighthouse | Ninety One | Purple Group | Trustco)

Get the latest recap of JSE news in the Ghost Wrap podcast, brought to you by Mazars:

Afrimat has more good news for the market (JSE: AFT)

Alongside the Lafarge deal opportunities, the rest of the group is producing great results

Afrimat has released a trading statement for the year ended February 2024. HEPS is expected to increase by between 21% and 26%, coming in at between 553.6 cents and 576.5 cents. This is excellent news for shareholders, particularly after the other recent good news of the Lafarge deal closing.

On a share price of R63, Afrimat is trading on a Price/Earnings multiple of roughly 11.2x at the midpoint.

Detailed results are due on 15 May, so you’ll have to wait about a month to learn more about the drivers of these numbers.

Lighthouse is looking at selling more Hammerson shares (JSE: LTE | JSE: HMN)

Lighthouse would prefer to be prepared for direct property investment opportunities

Lighthouse Properties has already sold down quite a chunk of Hammerson shares, with Hammerson having won few friends among its strategic holders for the decisions it made around its dividend. Based on previous Category 2 announcements, Lighthouse has sold Hammerson shares representing 26.21% of Lighthouse’s market capitalisation. If they moved through the 30% mark over a 12 month period, it would trigger a Category 1 process.

Such a process is time-consuming, so Lighthouse is pre-empting this by going through the motions now and asking shareholders for approval for such a disposal. The shares in Hammerson wouldn’t be sold at a price lower than a 10% discount to the 5-day VWAP before the disposal.

Assuming the approval is obtained, this would give Lighthouse the flexibility to sell the Hammerson shares as required in response to opportunities to make yield-accretive direct property investments.

Ninety One’s AUM is trending sideways (JSE: N91 | JSE: NY1)

It’s more difficult to increase AUM without a significant distribution angle to the business

Whilst I’m the first to acknowledge that I’m no expert in this space, it does seem to me as though the PSG Konsults and Quilters of this world are finding it easier to increase AUM than the more pure-play asset managers like Coronation and Ninety One. It makes sense to me intuitively, as having a large sales force out there can only be positive for assets under management. Of course, that sales force comes at a substantial cost, so the distribution side of the business needs to be successful for there to be a net positive impact on the group.

Without a particularly strong distribution model, Ninety One’s AUM seems to be limping sideways. A year ago at the end of March 2023, it was £129.3 billion. At the end of December 2023, it was £124.2 billion. The latest number is for March 2024, coming in at £126 billion.

Key metrics head the right way at Purple Group (JSE: PPE)

The swing into profitability is for all the right reasons

When the trading statement came out that reflected a move into the green, the market didn’t really give much of an initial reaction. This changed with the release of detailed interim results, with the share price up nearly 17% for the day. This is because there’s a great story to tell, with Purple revenue up 29.3% and group expenses down 0.4%, leading to a positive earnings result.

Notably, the net asset value is 41.6 cents per share and interim HEPS was 0.78 cents, so the closing share price of 90 cents reflects a lofty valuation. If Purple can maintain this momentum and push through the inflection point for profitability (i.e. with most of the additional revenue dropping to the bottom line), the earnings multiple can unwind quite quickly.

There are numerous metrics in the full report, including Easy Group (EasyEquities and associated businesses) growing revenue by 34.9% and active clients by 12.5%. This means they are making more per client, achieved through non-activity based revenue increasing by 62% to R95 million. The monthly account fees have made all the difference here. Compare this to activity-based revenue increasing by 10% to R71 million. For all the naysaying and complaining on social media at the time, the account fees have absolutely been the right decision. Easy’s bottom line swung from a loss of R16.5 million to profit of R11.8 million.

Perhaps most impressively, they achieved net retail inflows despite the operating environment.

This certainly isn’t the most beautiful chart I’ve ever seen, but it does show how the Easy Group actually makes money:

It’s also good to see that the earnings from GT247.com have become a lot more dependable, with profit for the period of R4.2 million for this period vs. R3.2 million in the comparable period.

Riskovitz Value Fund could invest up to $100 million in Trustco (JSE: TTO)

At this stage, the arrangement is light on details

Trustco has entered into an agreement with Riskowitz Value Fund that provides for a six-month window period for the latter to invest up to $100 million in hybrid capital (or other capital to be agreed on) in Trustco. Essentially, it sounds like Riskowitz is agreeing to keep the capital available for Trustco, with no fee payable by either party.

Riskowitz is already a shareholder in Trustco with a 23% stake. It has been a shareholder for over 10 years.

I found this line in the press release on the Trustco website, which wasn’t in the SENS announcement:

“The transactions allow Trustco and RVF to capitalise on the unreasonably low market valuation of Trustco, to create long-term value for all Trustco shareholders.”

To me, this makes it sound like Riskowitz may well be investing in a hybrid instrument so that Trustco can then execute share buybacks of ordinary shares at the depressed market price. I’m purely speculating on this.

Little Bites:

  • Director dealings:
    • As one would hope, a few directors and the company secretary of Fortress Real Estate Investments (JSE: FFB) elected to receive capitalisation shares in lieu of the cash dividend.

There is always an alternative…

Michael Field, GM: Investments at Fedgroup
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There is always an alternative…

Michael Field, GM: Investments at Fedgroup

In today’s bear market, where traditional investment strategies fall short of expectations, dismissing alternative assets before properly evaluating their worth seems nonsensical.

No matter how you slice it, you simply can’t get true diversification from a collection of investments that all draw from the same diminishing pool of JSE equities and bonds. And the volatile performance of these over the last few years proves that.

These days, to meet an investor’s need for capital security and long-term growth, a balanced portfolio needs to contain a carefully curated mix of different asset classes that react in different ways to market movements. If all your investments behave the same, what’s to shield you from turbulent markets?

It’s easily achieved by incorporating an appropriate selection of both traditional investments and alternative investments. That way, risk exposure is better spread across the portfolio because the performance of the alternative assets is not linked to market sentiment.  

Alternative isn’t a dirty word

Think of the word ‘alternative’ and what comes to mind? If it’s someone with vegan sandals and a goatee, that could explain the reluctance we see among some investors to take a serious look at alternative investments.  

No judgement here about lifestyle choices. To each their own (though the jury is out on the edible footwear). However, there is a serious point to be made about the instinctive distrust of anything that falls outside the familiar. And, in the case of alternative investments, the bad rap they get simply for being less conventional and, frankly, misunderstood.  

Not only does it do the alternative asset class a disservice to unfairly bundle everything that isn’t a listed equity or bond into one basket, but it also implies that anything with an ‘alternative’ tag is inherently sketchy and should be treated with distrust.

As is the nature of life, no two things are exactly the same. Alternative assets account for most of the options available in the market, outside of bonds and equities. With such an array of options to choose from, it stands to reason that some of these assets carry more risk than others. Due diligence is always key and the more intangible the assets – like hedge funds, crypto and other unique trading items – the greater the risk appetite required.

Our collective view of alternative assets definitely needs to be reassessed. After all, where do you think those former-JSE-listed assets go when retired from the stock exchange?

By their very nature, alternative assets offer investors a way to smooth their investment journeys because they aren’t prone to the same kind of extreme fluctuations as assets that are linked to the stock market.

At Fedgroup, we’re not championing alternatives merely for the sake of it and we’re not in the business of recommending assets in any class that can cost people their hard-earned savings. We consciously look at incorporating alternative assets that can provide the right return characteristics for investors, and an important factor to consider is the ability to deliver a smoother returns curve. So, you can believe it when we say we’re excited by the array of alternatives that meet our immoveable criteria for stability and security.

Getting the balance right

Incorporating alternatives and getting the mix of investments right gives you breathing room in your portfolio to explore interesting opportunities over the course of your investment journey, without sacrificing the returns of your entire portfolio.

So, which alternative assets have the potential to deliver these highly sought-after stable returns? Ventures in the sustainability sector are a good starting point. Especially those in renewable energy and agriculture, where investors have an opportunity to grow their own wealth while also making a positive contribution to our planet. 

There’s also the broader benefit of  helping to address key socio-economic factors such as job creation, food security, and energy production, which in turn have a positive impact on the ability of these assets to generate returns. People need to work and eat, and they need electricity. Investments into these sectors therefore will deliver a return as these sectors continue to grow.

A diverse mix of alternatives like these, along with traditional investments, can help investors to mitigate risk, by bringing balance to portfolios that have been sucker-punched by market sentiment and fluctuating market cycles.

Although more and more investors are getting the message, there are still too many whose portfolios exclude alternatives because they, or their financial advisors, remain blinkered to their potential.

At Fedgroup, we’ll keep banging the drum because, the way we see it, alternatives are fast becoming mainstream.  

For more information, visit the Fedgroup website.

Fedgroup Logo

Fedgroup is a specialist financial services provider with a legacy of putting people before short-term profit. For over 30 years, we’ve delivered market-leading financial solutions that not only enhance value for our clients, but remain straightforward, transparent and easy to understand.

Ghost Bites (AH-Vest | Sirius Real Estate)

The Finance Ghost
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Ghost Bites (AH-Vest | Sirius Real Estate)

Get the latest recap of JSE news in the Ghost Wrap podcast, brought to you by Mazars:

AH-Vest is profitable, although the share price suggests otherwise (JSE: AHL)

When last did you see something trading on a Price/Earnings multiple of 0.5x?

AH-Vest operates the All-Joy brand, which means it processes tomatoes and turns them into tasty things to put on your hotdogs or in your pastas. It’s a lot harder than it sounds, with issues like trying to manage the risks of import-heavy supply chains and supporting local farmers.

Although related party transactions do make this company trickier to understand than most people would like, the reality is that the share price is R0.02 and HEPS for the six months to December 2023 came in at R0.0259 – so this is on an annualised Price/Earnings multiple of below 0.5x. Another helpful data point is net asset value per share of 48.24 cents per share, which is over 24x higher than the share price.

Goodness knows this isn’t the most lucrative business model around. Revenue was up just 1.9% for the period and the gross profit margin deteriorated sharply from 36.6% to 32.4%, so there are challenges. The impact was largely offset by a 7.6% drop in operating expenses, driving a 35% increase in profit before tax.

The percentages sound interesting but the actual numbers are tiny here. Profit before tax increased from R2 million to R2.7 million. When you compare this to the trade receivables balance of R56.6 million, you can see that the working capital burden of this business model is concerning relative to profitability.

This seems to be a perfect example of a company on the JSE that is so tiny that very few in the market even read its SENS announcements, let alone buy it. It doesn’t help that the lowest offer in the market is R0.40, which is a lot closer to net asset value per share. The best bid is just R0.04.

Tomato spreads might be tasty, but bid-offer spreads like these are not.

Solid rental growth at Sirius Real Estate (JSE: SRE)

This is a good story to tell alongside recent acquisitions

Sirius Real Estate released a trading update for the year ended March 2024. The overall rent roll is up 8.2%, or 7.2% on a like-for-like basis. Sirius points out that this is the tenth consecutive year of like-for-like rent roll growth in excess of 5%. This is particularly impressive when you remember that this is in hard currency, as the portfolio is in Germany and the UK.

Inflation has come down in Germany in the past year, so growth in that market has been mainly achieved through a reduction in vacancies. This does good things for the portfolio valuations. The same is true for the UK, which is why like-for-like rent roll growth has been at similar levels across the two countries.

It sounds like there’s more pressure on valuation yields in the UK than Germany, so watch out for that. Despite the challenges, Sirius expects a positive movement at group level at year-end.

Sirius has been on the acquisition trail recently, having raised €165 million in the market for that purpose. €96 million has been invested in UK acquisitions and €55 million in acquisitions in Germany. The UK acquisitions were on a weighted average net initial yield of 8.9% and the German acquisitions on 9.3%.

The fund is also happy to recycle capital, which is so important in this sector. There were disposals of €51 million in the second half, all completed at or above book value. The disposal process has focused on mature properties in Germany, with Sirius taking the approach of acquiring underperforming properties and selling them once vacancies etc. have improved. This active approach is why the market is prepared to put a premium valuation on Sirius, even if that premium got way too high during the pandemic.

The weighted average cost of debt is 2.1% and there are no major maturities until June 2026. We do seem to be in a higher-for-longer environment though, with Sirius acknowledging the risk of higher future funding rates as debt is refinanced. For reference, last year’s refinancing activities were at rates around 4.25%, which is obviously well above the weighted average across the book.

Ever the optimists, Sirius also points out that the higher interest rates create opportunities for acquisitions due to pressure on property valuations!

Little Bites:

  • Barloworld (JSE: BAW) closed more than 10% higher after starting the day with the release of a cautionary announcement. It gives absolutely no information on the type of thing being considered or even which segment it relates to, but that didn’t stop speculators from hitting the “buy” button!
  • Trustco (JSE: TTO) has renewed the cautionary announcement related to various potential transactions, which are in the final stages of being submitted to the board for approval.
  • Holders of around 6.25% of shares in BHP Group (JSE: BHG) elected to participate in the dividend reinvestment plan. I’m surprised to see just how many BHP investors are clearly in this for cash dividends rather than capital growth.
  • Conversely, the result of the dividend capitalisation issue (a similar structure) at Fortress Real Estate (JSE: FFB) had a very different outcome, with holders of 33.79% of the FFB shares electing to receive more shares instead of a cash dividend.
  • As a further scrip-versus-cash data point, it looks like holders of around 35% of Lighthouse Properties (JSE: LTE) shares elected to receive shares in lieu of a cash dividend.
  • As a reminder of how enormous British American Tobacco (JSE: BTI) is, the company is casually busy with debt security repurchases of up to £1 billion as part of general management of the balance sheet.

Ghost Bites (Accelerate Property Fund | Purple Group | Transaction Capital | York Timbers)

The Finance Ghost
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Ghost Bites (Accelerate Property Fund | Purple Group | Transaction Capital | York Timbers)

Get the latest recap of JSE news in the Ghost Wrap podcast, brought to you by Mazars:

Accelerate Property Fund taps the market (JSE: APF)

The company needs to raise R200 million via a rights offer

Accelerate Property Fund has a broken balance sheet. Fixing such a problem isn’t easy, unless there are properties that are easy to sell at market value. Even then, this inevitably means selling the best properties in a portfolio to reduce debt and being left with only that yucky stuff at the bottom of the dishwashing water.

Accelerate Property Fund got itself into this mess and shareholders will be asked to get it out. The company warned in December 2023 that a rights issue of up to R300 million may be needed. Although the end result isn’t quite as bad as that, a right issue of up to R200 million is still very far from ideal.

This is being done at a fat discount to what is already a highly discounted share price. The subscription price is a discount of 31.65% to the 30-day VWAP. Although excess allocations will not be allowed, this is a renounceable rights offer and so shareholders can try sell their letters of allocation in the market if they aren’t going to follow their rights.

Whatever you do, don’t allow your letters to expire worthless. Either follow your rights or sell the letters, or all you are doing is destroying value in your shareholding.

K2016336084 (South Africa) has fully underwritten the offer. Although this circular doesn’t say it, a previous announcement described this entity as the iGroup, which already holds a significant minority stake in Accelerate. Whether or not that name is still applicable isn’t obvious, but what is useful in the circular is a note that Urban Retail Property Investments is the sold shareholder in that entity.

The underwriter gets paid a delicious 5% fee of R10 million for this (plus a recoupment of costs of up to R300k), which just means more pain for other shareholders. Escaping a rotten balance sheet is always a very unpleasant exercise.

The circular is available here.

Purple Group swings into the green (JSE: PPE)

And now we wait for full details

Purple Group released a trading statement for the six months ended January 2024 that tells a positive story. After reporting a headline loss per share of 0.84 cents in the prior period, Purple has swung solidly into the group with HEPS of between 0.74 cents and 0.82 cents.

Keep in mind that this is a stock trading at 70 cents per share, so this puts it on a rather daft Price/Earnings multiple. Of course, the market is smarter than that, so investors will wait for more information on the drivers of these earnings and other key metrics like cash conversion.

After a one-way journey for the share price since the peaks in early 2022, this is a welcome return to profitability. Full details are expected on Tuesday, 16th April.

Transaction Capital: life after WeBuyCars (JSE: TCP)

More leadership changes have been made

The Transaction Capital share price dropped to R3.36 in the aftermath of the WeBuyCars unbundling. This is where value investors will pay attention, as the “ugly duckling” that gets ignored by the markets is where savvy value investors can make money. It’s also where they can get severely humbled. Nobody said this game was easy.

With WeBuyCars now out of the picture and Transaction Capital having taken the opportunity to unlock some capital in the process to help repair the balance sheet, the group now has the charred remains of SA Taxi and the interesting prospects of Nutun to manage, along with some other bits and pieces.

To navigate the way forward, the board is being streamlined into three committees (down from six). Forgive me for not spending much time on non-executive director stuff, particularly since there were plenty of committees in place when I watched my Transaction Capital position blow up. Instead, I’ll focus on the executive changes, with the big one being that the Chief Investment Officer and Chief Financial Officer roles are being combined into a single executive position. Mark Herskovitz is stepping into that role, having been with the group since 2007 in various leadership roles. Sahil Samjowan is stepping down as CFO.

It’s also rather interesting to note that another Transaction Capital founder has been pulled off the proverbial golf course to come back and help fix things up. Roberto Rossi is being appointed as an executive director of TransCapital Investments.

The road ahead will be volatile, of that I’m confident.

York raises debt from an international lender (JSE: YRK)

Those biological asset movements must’ve been a key part of this negotiation

York Timbers is many things, but a cash cow hasn’t been one of them. Forestry is a complicated thing and movements in the valuation of the biological assets can look very different to the operational profits in a given year. York seems to have found a lender who understands that, with Nederlandse Financierings-Maatschappij Voor Ontwikkelingslanden N.V. (there’s a candidate for your next tongue twister) agreeing to lend R350 million to York as a new long-term facility.

This will refinance R146 million in debt from the Land and Agricultural Development Bank of South Africa and R75.7 million from Absa. They will also use R65.4 million to acquire Pine-Valley farms. The rest will be for general working capital and the Environmental and Social Action Plan.

The loan is for a nine-year period and must be paid off in instalments. Capital repayments only start after three years.

The rate is 3-month JIBAR plus a margin of 338 basis points per annum. This works out to 11.73% based on Friday’s JIBAR rate. The margin drops by 50 basis points once York achieves two consecutive years of net profit and a net debt to EBITDA ratio below 3x.

The debt has been structured to match the profile of York’s plantation reaching optimal rotation age, which is perhaps why York needed an international lender to get this right. This is very different to the standard loan and credit process.

Little Bites:

  • Director dealings:
    • It wasn’t the easiest thing to figure out, as Mpact (JSE: MPT) first announced the vesting of 2021 Bonus shares as well as shares under other schemes, and then a few days later announced the extent of share sales. As always, sales to cover tax don’t count as a sale for me, but excess sales do. From what I can see, almost all the executives and prescribed officers chose to sell all the shares that vested, rather than just a portion. On top of that, a director of the major subsidiary also sold R2 million worth of shares in an on-market trade.
    • The spouse of the CFO at Standard Bank (JSE: SBK) sold shares in the company worth R149k.
  • The stake held by Canal+ in MultiChoice (JSE: MCG) is now 40.01%, with the company mopping up liquidity in the market with recent purchases between R117 and almost R120 per share. Canal+ will keep doing this provided the price is below the mandatory offer price of R125 per share.
  • AH-Vest (JSE: AHL) has practically zero liquidity and a market cap of R2 million. No, that isn’t a typo. The share price is at 2 cents per share. For the six months to December 2023, HEPS will be 37% higher than the comparable period, coming in at 2.59 cents per share. This is one of those classic examples of a very odd situation in microcap land.
  • Visual International (JSE: VIS) replaced Moore Infinity with LDP Chartered Accountants as its auditors. This will save on audit costs going forward. LDP’s website suggests that they have nearly 140 staff, so it’s not the smallest place around even though I hadn’t heard of them before.
  • Salungano Group (JSE: SLG) announced a further delay to the publication of FY23 financial results due to the audit opinion not being finalised in time. To make it worse, no updated timeline has been given. The company also reminded shareholders that the business rescue process for Wescoal Mining is waiting for the postponed meeting in June 2024. The business rescue for Keaton Mining is under appeal, as the business rescue application was initially dismissed.

Nobody wants to buy alligator pears

Dominique Olivier
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Nobody wants to buy alligator pears

It’s not every day that a supersized annual sporting event transforms an obscure exotic fruit into a $341.9 million industry. This is the unlikely story of the avocado, the Super Bowl and the rebrand of the century. 

Before we go any further: yes, avocados are technically fruits (if you want to get even more technical about it, they are members of the berry family). And while they seem to be ubiquitous these days, topping everything from toast and pizza to poke bowls, there was a time not too long ago when these pear-shaped, leather-skinned delicacies were considered quite rare in the United States. So how did the humble avocado graduate from grocery-store reject to Super Bowl Sunday star ingredient? 

Let’s start at the beginning. 

What’s in a name? 

The avos we know (and love) today weren’t always known by their snappy name. From their early start in Central and South America around 500 BC, they were known to Spanish speakers as the aguacate fruit. This proved challenging to pronounce in the West, particularly in North America. Their original aztec name, āhuacatl, was even more of a problem, especially since it translates directly to “testicle” (an ode to both the shape of the fruit and its use as an aphrodisiac). 

Inspired by the outline of the fruit and its tough, bumpy skin, farmers in the United States dubbed it the alligator pear. While this was much easier to pronounce, the visual of a swamp-dwelling, man-eating reptile did little to move avocados off the shelves. The fact that they really had nothing in common with pears beyond their shape also didn’t help matters. 

Farmers had a marketing problem on their hands. They knew that the fruit had potential, but they couldn’t convince people to try it. After much to and fro, a group of growers came together in 1915 to solve the problem for good. They decided to rename the fruit as the avocado – a nod to its language of origin with an upmarket, exotic spin. This, they reckoned, was a product that could be sold to the dinner party crowd, the perfect appetiser to accompany prawn toasts and shrimp cocktails.

By the 1920s, the collective of avocado growers had also renamed themselves the California Avocado Association, and they were well on their way to positioning avocados as the luxury food of the decade. One print ad from that era showed a beautifully sliced avocado, fanned out on an expensive piece of china, under the headline: “The aristocrat of salad fruit.”

Avocados were finding their market, but it was a niche one that saw little sales. For things to really improve, bolder steps needed to be taken. 

A bumpy route to market

Avocados are curious things, and that curiosity makes them a hard sell. Think about it: they are found in the fruit aisle of the grocery store, but they aren’t sweet. They have a tough, inedible skin and a hard pit that is difficult to remove. They ripen slowly but go off very quickly. They don’t cook well and start browning practically as soon as they have exposure to air. 

For starters, consumers in the US had to be educated on what avocados were. Americans simply didn’t know how to choose or eat the fruit – they weren’t waiting for them to ripen, and were then disgusted by the taste and texture. The growers went to great lengths to educate supermarket owners on the difference between a ripe and unripe avocado, so that they in turn could help their customers. 

Various avocado marketing campaigns saw moderate sales in the produce aisles between the ’50s and ’70s. That was all well and good until nutrition experts began to promote a low-fat diet. The public couldn’t differentiate between saturated fats, which were the target of this movement, and monounsaturated fats, which are “good” fats. 

Naturally, fatty avocados came under fire. Again, the avocado growers thought smartly. By funding research into monounsaturated fats and the benefits of the Mediterranean diet in particular, they made a strong case for avocados as a health food, thereby unlocking a new consumer demographic. Avocados entered the nineties with a healthy edge, but sales still lagged.

Holy guacamole

Since the start, the avocado problem has been a marketing problem – and there’s only one way to solve one of those. Eventually, a PR firm was hired to transform avocados from a luxury item into an everyday item for shoppers. That’s when the guacamole Super Bowl ritual was born.

In the ’90s, the nature of Super Bowl Sunday changed. The event became less about watching the game and more about having a reason to get together for a party – and having a party meant consuming beer and snacks. And what better snack to accompany all those chips than guacamole? Naturally, avocado growers wanted in on the Super Bowl frenzy, but there was one major problem. The Super Bowl takes place right in the middle of the growing season for avocados in the US, when ripe fruits are unavailable. 

This may have been a problem for US growers, but south of the border, Mexican farmers got a whiff of potential. Avocado imports from Mexico were banned until 1997 due the alleged risk of parasites from tropical climates, but restrictions were loosening up. Seizing the opportunity to colonise the Super Bowl, more and more Michoacán producers managed to pass the sanitary tests necessary to gain access to the US market. By the time the Mexican avocado imports were completely liberalised in 2007, Michoacán had become an unbeatable competitor for Californian avocado growers. 

In 2021, 132.3 tons of avocados were consumed on Super Bowl Sunday. About 75% of those Super Bowl avocados were imported from Mexico, which has been the largest supplier of avocados to the US since 2008. 

Banned less than three decades ago, avocados from Mexico have become so normalised in the US that one brand has even adopted the phrase as their name. And their Super Bowl ads are… shall we say, memorable. 

The dark side of the guacamole 

Of course, where there is massive demand, there is usually also massive opportunity for crime. 

It probably comes as no surprise to anyone that Mexico now has numerous avocado cartels. The same avocado farmers in Michoacán who seized the opportunity to be a part of the Super Bowl are increasingly becoming victims of blackmail and kidnapping, forced to sell their orchards to gangsters at bargain prices. And that’s the good outcome. The less good outcome ends with a bullet hole at the nape of the neck. 

Meanwhile, large importers and avocado brokers are making a different kind of killing. By purchasing their avocados from dodgy producers at dirt-cheap prices, they are able to effectively pay a dollar per kilo for the same avocados that later sell for eight dollars in US supermarkets. 

Capitalism, hey? Not even avocados are spared. 

About the author:

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

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

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

Ghost Bites (Kibo Energy | Nu-World | Schroder | Sibanye-Stillwater)

The Finance Ghost
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Ghost Bites (Kibo Energy | Nu-World | Schroder | Sibanye-Stillwater)

Get the latest recap of JSE news in the Ghost Wrap podcast, brought to you by Mazars:

Kibo Energy’s subsidiary Mast is making progress – I think (JSE: KBO)

Further funding will be needed to support the projects

Kibo Energy continues to languish at R0.01 per share – the lowest possible share price. There are 73.6 million offers in the market at R0.02 and 17 million bids at R0.01, so more investors want out than in – even at this price.

Half the problem is that it’s quite difficult to figure out whether Kibo is delivering good news or not. The announcements are incredibly operational in nature and don’t give enough information in my opinion about the investment opportunities.

For example, the latest news at subsidiary Mast Energy Developments (MED) is that the Pyebridge flexible power generation asset was completed ahead of schedule and is back in operation. Also, the Hindlip Lane project has completed pre-construction work.

The announcement gives an indication of the gross profit margin income that Pyebridge could earn over the next couple of years, but gross profit doesn’t mean much. Net profit is what counts.

When you combine the limited financial information with the generic commentary about how MED is in discussions with various debt and equity providers, it’s really hard to understand how benefits will flow through to Kibo Energy. The only way this company is getting off the R0.01 mark is if they can drastically simplify the investment story and show more hard numbers, rather than endless paragraphs of operational information.

Some resilience at Nu-World, but when will it grow? (JSE: NWL)

Watch out for that working capital balance

Nu-World Holdings imports and distributes appliances, along with some other stuff like specialist liquor. That’s not an easy gig in South Africa, with consumers under pressure and infrastructure issues leading to the group needing to hold far too much inventory relative to sales. There’s nothing easy about a business model in South Africa that relies on consumer discretionary spending.

This is exactly why Nu-World has been putting a great deal of effort into offshore expansion, with those businesses now contributing more operating income than the South African businesses!

This hasn’t stopped Nu-World from being quite the value trap, with the share price not rewarding investors who are buying it at a price far below net asset value per share.

Still, there’s some resilience in this thing now thanks to the offshore exposure, with revenue for the six months to February down by 2.8% and HEPS down 5.0%.

Schroder’s real estate values are still under pressure (JSE: SCD)

Aside from the industrial portfolio, it’s still tough out there

Schroder European Real Estate announced property valuation movements for the quarter ended March 2024. Overall, the direct property portfolio fell by 1% for the quarter. This was driven by “continued outward yield movement” – a fancy way of saying that the capitalisation rate for the valuation was higher, which makes the present value of future cash flows lower. This leads to a negative move in valuations despite rental income being stable.

The highlight is the industrial portfolio, which saw valuations increase 0.4% for the quarter. The office portfolio wasn’t too bad actually, with valuations down 1.1%. The German retail portfolio brought up the rear for the traditional assets, with the valuation moving 2.3% lower. The alternative investments saw their valuations drop 3.2%.

The portfolio loan-to-value is 33% gross and 24% net of cash.

More retrenchments likely at Sibanye-Stillwater (JSE: SSW)

Another day, another s189 for the group

Although there are signs of life in PGMs and gold is at record highs, Sibanye-Stillwater still needs to carefully manage its operations to ensure that the business is run sustainably. The company isn’t shy to enter into retrenchment processes, with a few recent examples.

This time, the issues are losses at the Beatrix 1 shaft (which has not delivered planned production) and the problems at the Kloof 2 plant related to insufficient processing material available to cover overheads after closure of the Kloof 4 shaft during 2023. As a further problem, capital expenditure at Burnstone has been deferred, which means restructuring is needed to align with the reduced capital activities.

With less activity at the mines, the shared services functions for South Africa are surplus to requirements. The company also takes into account further planned investments when making this assessment.

These proposed restructuring activities could affect 3,107 employees and 915 contractors.

Little Bites:

  • Delta Property Fund (JSE: DLT) announced that Brett Copans has been appointed as a non-executive director to the board. From what I can see, he’s also the Chief Restructuring Officer at Cell C. How many tough balance sheets can one person deal with at a time?
  • Two non-executive directors at Renergen (JSE: REN) will be leaving. The chair of the audit and risk committee will be retiring as a director and another director is resigning with immediate effect for personal reasons.
  • Although it hardly matters to shareholders of Tongaat Hulett (JSE: TON) as there’s no equity value in the thing anyway, it’s worth mentioning that the drama still isn’t over. Powertrans Sales & Services has applied to court to have the business rescue plan set aside as unlawful. Having said that, a skim through the founding affidavit suggests that Powertrans isn’t blind to the bigger picture here. Check out the screenshot below and read through to the founding affidavit if you’re interested.

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

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

Exchange-Listed Companies 

Sanlam has increased its stake in Shriram General Insurance (SGIC) and Shriram Life Insurance Company (SLIC). India is seen as a core market and strategic pillar to achieving long term earnings growth and sustainable shareholder value creation for Sanlam. Sanlam has acquired a further 10.74% stake in SGIC and 12.02% in SLIC from TPG India Investments II and Shriram Ownership Trust. The R2 billion purchase consideration will be partly funded from the net proceeds of its R3,3 billion disposal of a 1.56% sale of its Shriram Finance (SFL) stake to Shriram Value Services. Following the transaction, Sanlam’s effective economic shareholding in SGIC will increase to 50.99% and to 54.40% in SLIC. Its shareholding in SFL will decrease to 9.54%.

Shoprite has teamed up to form a venture capital fund with four global grocery leaders – Ahold Delhaize (US, Europe, Indonesia), Tesco (UK, ROI, Europe), Woolworths Group (Australia, New Zealand) and Empire Company/Sobeys (Canada) with Shoprite representing the African footprint. The new collaborative retail venture capital fund, W23 Global, will seek to invest US$125 million over five years in the world’s most innovative start-ups and scale-ups with the potential to transform grocery retail and address the sector’s sustainability challenges. Each retailer is an equal funder and partner in W23 Global, while their CEO’s will sit on the investment committee. Their ambition is to offer their portfolio companies faster pathways to global scale, without being exposed to a venture fund anchored by a single strategic investor.

This week, MultiChoice told shareholders that it would work closely with Canal+ on the mandatory offer made to shareholders. Canal+ has offered MultiChoice shareholders R125 per share in cash, significantly above the minimum price of R105 required by the takeover regulations – the price at which it acquired shares which triggered the mandatory offer. If shareholders with at least 90% of eligible MultiChoice shares accept the offer, then MultiChoice may delist from the JSE. However, shareholders may have the opportunity to participate in Canal+’s own proposed listing in Europe as part of a secondary inward listing on the JSE.

Micawber 832 purchased 185 Katherine Street (Pri-movie Park) and 1 Charles Crescent in Eastgate from Accelerate Property Fund in October 2023 for R117 million. Accelerate has announced that that Micawber has elected to nominate Emidomax in its place as the purchaser of Pri-movie Park and Minropox as the purchaser of 1 Charles Cresent (both beneficially owned by Africrest Properties and Old Mutual). All other terms and conditions remain unchanged.

The saga of the off-market takeover offer by Goldway Capital Investment of MC Mining shares ratchet up another notch this week with the company’s board advising shareholders to consider accepting the offer. With Goldway proposing to delist the company, citing limited liquidity in the trading of the shares, MC Mining’s board believes that there is no likelihood of an alternative bid or competing proposal on more favourable terms in the near term. Goldway, a consortium which includes MC Mining’s largest shareholders Senosi Group Investment Holdings and Dendoceptin, has an 83.67% stake in MC Mining.

Following the acquisition in March 2023 of a 74.2% stake in IQbusiness, Reunert is considering merging the business with +OneX into a single client-focused business, to create a digital integrator within Reunert ICT. The final decision on the combination is still to be made and will requiring the respective board and shareholder approvals. 

Unlisted Companies

Vantage Capital, Africa’s largest mezzanine debt fund manager, has announced that it has made a R346 million investment into Procera Group, a South African business process outsourcing (BPO) services provider. Vantage’s investment comprises the acquisition of a significant minority equity stake from the Procera founders as well as the provision of a mezzanine facility to support future strategic acquisitions by Procera. The group currently services over 50 local and international blue-chip clients across key industries such as Retail, Financial Services, Energy and Telecommunications in South Africa, Namibia, United Kingdom, United States and Australia.

Isipho Capital has added to its portfolio with the acquisition of the Hino dealership located in Pomona Johannesburg, making it the first 100% black-owned Hino dealership in the country. The dealership is also 65% women-owned. Other businesses in its portfolio include interests in Mr Coach, which specialises in ambulances, mobile clinics, hearses, buses, and other conversions, as well as Kholeka Engineering, which is known for its manufacture of truck bodies, trailers, people carriers and water tankers.

Enko Capital Managers has exited its 2015 investment in Madison Financial Services. The exit of the Zambian microfinance services group, by Enko Africa Private Equity Fund to Cape-based asset manager Mergence Investment Managers is by way of the sale of its entire equity and debt. Madison operates general and life insurance businesses along with microfinance activities in Zambia and a general insurance business in Tanzania.

DealMakers is SA’s M&A publication.

www.dealmakerssouthafrica.com

Weekly corporate finance activity by SA exchange-listed companies

Marylou Greig
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Weekly corporate finance activity by SA exchange-listed companies

Ellies, which entered voluntary business rescue in January this year, has advised that the appointed business rescue practitioner has concluded that there is no reasonable prospect of the Company being rescued. Given this, an application will be made to the place the company into liquidation.

WeBuyCars listed on Thursday 11 March, 2024 with a market capitalisation of R8,51 billion. The final number of ordinary shares in issue at the listing date was 417,181,120. The share price closed on its first day of trading at R20.40 – up close to 9% on the R18.75 price per share of its initial public offering.

A number of companies announced the repurchase of shares.

British American Tobacco has commenced its programme to buyback ordinary shares using the £1,57 billion net proceeds from its sale of ITC shares. The company will buy back £1,60 billion of its ordinary shares – £700 million in 2024 and the remaining £900 million in 2025. This week the company repurchased a further 1,480,000 shares at an average price of £23.35 per share for an aggregate £3,48 million. 

Prosus and Naspers continued with their open-ended share repurchase programmes. During the period 2 to 5 April 2024, a further 2,426,285 Prosus shares were repurchased for an aggregate €71,59 million and a further 226,606 Naspers shares for a total consideration of R749,3 million.

Two companies either issued, renewed, or withdrew cautionary notices this week: Tongaat Hulett and MultiChoice.

DealMakers is SA’s M&A publication.

www.dealmakerssouthafrica.com

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

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

DealMakers AFRICA

Edgars has successfully listed on the Victoria Falls Stock Exchange on Friday 5 April following shareholder approval to delist from the Zimbabwe Stock Exchange last month. 

Enko Capital Managers has exited its investment in Zambia’s Madison Financial Services to subsidiaries of Mergence Investment Managers in Cape Town. Madison was the first investment made by the Enko Africa Private Equity Fund back in 2015. This marks the fund’s sixth successful exit out of seven investments.

Prospect Resources has acquired an 85% stake in the Mumbezhi Copper Project in the Zambian Copperbelt from current owners, Global Development Cooperation Consulting Zambia. As settlement, Prospect will pay US$5,5 million in cash plus issue US$1million in shares. 

Ghanian digital bank, Affinity, has received an undisclosed investment from Renew Capital as it looks to expand across the continent.

Nigerian Exchange Group, FSD Africa and Trade and Development Bank Group, along with other domestic and international investors, participated in a capital raise for the Ethiopian Securities Exchange of ETB 1,514 billion (US$26,6 million) which represented a subscription of 240% on its initial target of ETB631 million (US$11,07 million).

SunCulture has raised US$27,5 million in an oversubscribed series B fundraise to scale its solar irrigation offering across sub-Saharan Africa. As part of the Series B, InfraCo Africa made a US$12 million equity investment in the Kenyan firm.

Altona Rare Earths and Ignate African Mining P/L have entered into an option agreement which gives Altona an exclusive option to acquire up to an 85% interest in Prospecting Licence PL2329/2023, known as the Sesana Project and located in Botswana’s Kalahari Copper Belt. The option agreement stipulates three tranche payments totalling US$110,00 in cash and US$250,000 in Altona shares over a four-year period.

The Board of Directors of Nigerian Breweries Plc is to recommend to shareholders at the next AGM that they approve a capital raise of ₦600 billion by way of a Rights Issue to help reduce the company’s debt burden and thereby strengthen its balance sheet. 

DealMakers AFRICA is the Continent’s M&A publication

www.dealmakersafrica.com

Froneman bets on guilt free hydrogen

Michael Avery
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Froneman bets on guilt free hydrogen

With the great majority of the world’s governments committing to decarbonising their economy within the next two generations, we are embarking on an adventure into the unknown.

What was once a debate over carbon price and emissions trading has evolved into an industrial policy competition. Along the path, there will be opposition and denial. There will be breakthroughs and unexpected victories. The cost of solar and wind electricity has dropped dramatically during the previous two decades, and battery-powered electric cars (EVs) have progressed from imagination to commonplace reality.

However, in addition to open resistance and unambiguous wins, we will have to deal with ambiguous situations, wishful thinking and motivated reasoning. As we seek technological solutions to the decarbonisation issue, we must be wary of the energy transition’s mirages.

Globally respected economist, Adam Tooze recently opined in Foreign Policy magazine that, right now, we face a similar dilemma – a dilemma of huge proportions – not with regard to H2O, but one of its components, H2—hydrogen. 

Green hydrogen is created when water is split into oxygen and hydrogen (natural gas), using wind or solar energy. Green hydrogen can replace fossil fuels.

“Is hydrogen a key part of the world’s energy future or a dangerous fata morgana?” Tooze reasoned rhetorically. “It is a question on which tens of trillions of dollars in investment may end up hinging. And scale matters.”

The real potential of green hydrogen, and how South Africa can take advantage of the anticipated demand in the drive towards clean, sustainable energy, was the subject of Johannesburg’s recent Indaba special session on green hydrogen so, clearly, industry is excited by its potential. Speaking to lawyers at Bowmans recently revealed that deal due diligence in the space is heating up. 

Green Hydrogen is coming into its own, with well over 500 projects globally, in various stages of development. The challenge so far has been getting these projects to financial close. Rebecca Maserumule, Chief Science and Tech representative – Hydrogen and Vaccines inside the Department of Science and Innovation, recently told Catalyst that only roughly 4% of these projects have reached final investment decision (FID).

Priscillah Mabelane, Sasol’s Executive Vice President – Energy Business, was quoted by Reuters in November on the sidelines of a demonstration of an on-road, green hydrogen ecosystem, where a car developed by Toyota was shown to run on fuel produced by Sasol, saying that the firm expects green hydrogen to be cost competitive by 2035. By then, costs would come down to below US$2 per kilogram, from between $4 and $6 at present.

Mabelane said that the company was working with the government to define standards and regulations for green hydrogen, and to set up a port for the export of the green fuel.

Meanwhile, Sibanye Stillwater is betting on “turquoise hydrogen”. 

In an interesting move toward a sustainable energy future, Sibanye-Stillwater and Savant Venture Fund announced a strategic investment in BurnStar Technologies, a trailblazing South African clean hydrogen company. This collaboration stands as a significant milestone in South Africa’s commitment to sustainability, with a focus on the production of Guilt–Free (Turquoise) Hydrogen™.

BurnStar Technologies, positioned at the forefront of South Africa’s hydrogen transition, employs a cutting-edge patented liquid metal reforming process for hydrogen production. Through methane pyrolysis, BurnStar can convert Methane, LNG or LPG feedstock into high-purity hydrogen with near-zero carbon dioxide emissions. Sibanye is betting that this innovative technology propels South Africa towards a more sustainable, low-carbon hydrogen future. 

Under the strategic watch of CEO Neal Froneman, Sibanye-Stillwater (SSW) has established itself as one of the world’s largest primary producers of platinum, palladium and rhodium, and is a top tier gold producer. It also produces and refines iridium and ruthenium, nickel, chrome, copper and cobalt. The Group has recently begun to build and diversify its asset portfolio into battery metals mining and processing, and is increasing its presence in the circular economy by growing and diversifying its recycling and tailings reprocessing operations globally.

Froneman recognises the potential of hydrogen as a clean energy source. Through SSW’s iXS programme, powered by Savant, this strategic investment in BurnStar demonstrates his confidence in supporting South African innovation with global applications.

Savant Venture Fund, known for its focus on transformative technologies, views BurnStar’s clean hydrogen production as a game-changer in the global energy landscape. This investment aligns with Savant Venture Fund’s mission to accelerate the adoption of sustainable technologies.

Francois Malan, Partner at Savant Venture Fund, shares his enthusiasm: “We are thrilled to be investing in Johan Brand and his team as they commercialise what we believe to be a world-leading technology in clean hydrogen production. The BurnStar solution has strong commercial promise in both industrial processing application and clean energy storage. This investment will demonstrate the first step towards paving the way for guilt-free hydrogen™ applications, both locally and internationally.”

While some may be weary of the hype, the fact is that while we may not need 600 million, 500 million, or even 300 million tons of green and blue hydrogen by 2050, we currently use about 100 million and, of that total, barely 1 million is clean, so the opportunity is still attractive. 

And so far, few would bet against Froneman in pulling off another coup. 

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

DealMakers is SA’s M&A publication.

www.dealmakerssouthafrica.com

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