Absa is heading in the right direction this year at least – but watch that 2025 guidance (JSE: ABG)

The operations in the rest of Africa remain a headache relative to SA

Absa has released a voluntary update for the year ending December 2024. As we saw at sector peer Standard Bank recently, the currency effects in Africa are creating a situation where banks with African operations are having a disappointing year. Absa notes that the exchange rates have been a drag on revenue and earnings of around 3% for this year.

On the whole, 2024 guidance is unchanged, which means Absa expects mid-single digit revenue growth with fairly similar growth seen across the two main sources of revenue: net interest income (NII) and non-interest revenue (NIR).

They expect mid- to high-single digit customer loan and deposit growth for the year. NII has slowed in the second half of the year due to lower growth in retail lending in recent months. Thankfully, NIR is having a stronger finish to the year, leading to the full-year commentary about how they are fairly equal contributors to growth.

The good news is that cost growth has slowed to mid-single digits, so the cost-to-income ratio is expected to be steady at 53.2%. This means low- to mid-single digit growth in pre-provision profit for the group.

With the credit loss ratio expected to improve year-on-year, you can therefore safely assume that Absa will deliver mid-single digit growth in earnings. The dividend payout ratio is expected to stay at 55%, so dividend growth should be in line with earnings.

They expect return on equity (ROE) to be 14% to 15%, which is too wide a range to be very useful. For reference, ROE was 14.4% in 2023.

Looking ahead to 2025, they unfortunately expect only moderate growth in revenue, leading to a negative impact on operating earnings due to expense pressures. That’s pretty weak guidance, particularly as they then give a hopeful view that ROE will somehow jump to 16% in 2026.

A clever B-BBEE deal at Nampak (JSE: NPK)

This is an example of how creativity can be applied in deal

In a world of cut-and-paste B-BBEE deals, it’s great to occasionally see one that does something different. Nampak has certainly ticked that box, partnering with Cambrian Capital Partners to create a private equity fund that will invest in Nampak’s South African business as well as other opportunities.

The founders of Cambrian are Tembinkosi Bonakele (the ex-head of the Competition Commission) and Tembeka Ngcukaitobi, a well-known Senior Counsel who was thrust even further into the limelight when he presented South Africa’s case at the ICJ. Bonakele is the Managing Director of Cambrian and Ngcukaitobi is the Non-Executive Chairman.

Nampak has assisted in incubating the fund, enabling Cambrian to subscribe for shares in Nampak Products. Through an internal financing transaction using preference shares (far superior to the classic structures using bank financing), Cambrian will acquire its stake in Nampak Products at nominal value. This avoids Cambrian starting its life with high levels of debt. Cambrian will hold a 15% interest in Nampak Products, taking Black Ownership in that subsidiary to over 25% (remember there are flow-through rules that reference the listed shareholders in Nampak Limited).

Further to this, Nampak Intermediate Holdings will provide committed capital of R12.5 million over the life of the fund, allowing the management team of Cambrian to participate in other opportunities and diversify their exposure as well.

As limited partner of the fund, the cleverness lies in Nampak actually participating in equity upside through the fund, so the cost of this deal is vastly lower than would be the case in traditional structures.

Trustco has released the circular for the Legal Shield deal (JSE: TTO)

This deal essentially flicks Riskowitz Value Fund up to the top

Back in 2017, Riskowitz Value Fund acquired 20% in Legal Shield Holdings, a key Trustco subsidiary, for a meaty N$1.2 billion. Yes, that’s R1.2 billion! A lot of things then transpired, many of which were painful, leading to Riskowitz Value Fund transferring 8.65% in Legal Shield Holdings to University of Notre Dame as one of the investors in its fund.

This left Riskowitz with an 11.35% stake. Trustco is now acquiring that stake and issuing new Trustco shares to pay for it, which means Riskowitz is swapping exposure in the subsidiary for exposure to the group. This will be paid for by the issuance of 400 million shares at N117 cents per share. Trustco is only trading at 35 cents per share at the moment, so this means that Riskowitz is getting R140 million back at current prices for a stake originally acquired for around R680 million. Ouch.

The nuance is that this will give Riskowitz the largest shareholding in Trustco, so the fund will be perfectly placed for any major transactions that unlock value at some point.

The independent expert has determined the transaction to be unfair, but reasonable. This is based on the expert’s view on what the shares in Trustco are actually worth vs. the heavy discount that they are currently trading at. This deal references illiquid shares in two different companies, which always makes things tricky.

Shareholders will now need to vote on the transaction.

In a separate announcement, Trustco noted that they are still busy with approvals for a share repurchase transaction with a related party. The date for completion has been extended to February 2025.

Vukile’s latest deal in Spain is still on hold (JSE: VKE)

They are still assessing the property for flood damage

If you’ve been following Vukile, you’ll know that the property fund is heavily invested in Spain via its subsidiary Castellana Properties. The country is proving to be a popular investment choice for a few South African property funds, with competition for properties heating up.

The terrible recent floods in Spain threw a proper spanner in the works for one of Vukile’s planned deals though. The proposed acquisition of Bonaire Shopping Centre was delayed to allow the impact of the flood damage to be assessed. If you’ve ever wondered why material adverse change clauses are so important, this is a great example! If something goes terribly wrong during a deal, the buyer needs the right to walk away or delay things.

The latest announcement by Vukile notes that the exclusivity arrangement for the acquisition is in place until the end of January 2025. For now, property damage from the flood is still being assessed before a decision can be made.

Nibbles:

• Director dealings:
  • A director of a subsidiary of RFG Foods (JSE: RFG) sold shares worth R4 million.
  • If I understand the Sea Harvest (JSE: SHG) announcement correctly, various directors received share awards and only one of them elected to keep the awards to the value of R1.36 million. Most of the directors didn’t retain any shares.
  • Acting through Titan Premier Investments, Dr. Christo Wiese has bought another R524k worth of shares in Brait (JSE: BAT).
  • The CEO of RH Bophelo (JSE: RHB) bought shares worth over R430k.
  • A director of Rainbow Chicken (JSE: RBO) bought shares worth R45k.

• From my perspective and what I’ve seen on X, people aren’t any closer to understanding the numbers behind the acquisition of Sublime Technologies by Mantengu Mining (JSE: MTU). The deal looks too good to be true, yet here we are, with all conditions fulfilled and the deal now implemented! The company has also been making several drawdowns from the R500 million facility made available by GEM Global Yield, taking the form of share issuances to raise capital.

• Here’s something you won’t see every day: Crookes Brothers (JSE: CKS) is terminating the appointment of BDO South Africa as it external auditor due to the proposed fees for the next financial year “exceeding the company’s affordability criteria” – they will now look for an auditor that is more affordable.

• Conduit Capital (JSE: CND) has noted that the potential disposal of CRIH and CLL has been given further room to breathe, with the parties extending the long stop date to March 2025 in the hope that the Prudential Authority may give a positive response. This is after the Financial Services Tribunal agreed to set aside the Prudential Authority’s decision. Having said that, the potential purchaser (TMM Holdings) will only cover CLL’s operating costs until the end of January 2025, so there’s a financial hole coming down the road.

• Obscure property group Deutsche Konsum (JSE: DKR) has seen its balance sheet improved through a bondholder partially converting EUR37 million worth of bonds into shares. This makes the holder (Versorgungsanstalt des Bundes und der Länder – good luck pronouncing that!) a major shareholder of Deutsche Konsum. More importantly, it takes some pressure off the loan-to-value ratio.