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Accelerate signs off on an awful period (JSE: APF)

Even funds from operations per share went negative in FY24

Accelerate Property Fund has been a bit of a horror movie for the past two financial years. Total negative fair value adjustments of -R1.14 billion have been recognised over two years, with the net asset value (NAV) per share now down to R3.65, a drop of 11.6% year-on-year.

Perhaps most worryingly, SA REIT funds from operations per share went negative in this period, coming in at -R0.72 per share in FY24 after being R10.72 per share in the comparable period. Vacancies are up from 18.3% to 21.1% and this is despite disposals during the year that helped reduce vacancies. The SA REIT loan-to-value (LTV) is up from 48.2% to 50.2%, so it really is a dangerous situation.

Although RMB and Sanlam agreed to extend their respective debt facilities, the reality is that this comes at a cost because Accelerate’s numbers are so bad. The weighted average cost of funding has increased from 10.45% to 11.48%.

Even with the R200 million rights offer to reduce debt that was concluded after year-end, they aren’t out the woods yet. They are planning another R100 million during the 2025 financial year.

The share price at R0.50 vs. the NAV at R3.65 tells you that the market is pricing this thing for near-disaster. It’s not hard to see why based on the numbers. Hopefully, some GNU-inspired improvement in sentiment will filter through into the portfolio – and especially Fourways Mall.

The Ascendis deal is dead (JSE: ASC)

It’s going to be very interesting to see what the share price does now

After the extensive legal wrangling around the transaction, with the latest news being the High Court setting aside the TRP ruling for lack of procedural fairness (specifically towards Theunis De Bruyn and Calibre Investment Holdings), the deal for Ascendis in its current form is dead.

The member of the consortium that underwrote the bank guarantee elected not to renew it, which means the money is no longer available and hence the deal will lapse. This is a very good reminder that a deal is never a deal until the money is in the bank. This is exactly why fulfilment dates for conditions exist.

There are obviously some interesting legal questions now, like whether the TRP needs to continue its process when there isn’t an offer anymore. There’s also the small matter of the Ascendis share price, which traded around the 60 cents mark before this offer came to light.

It fell 10.1% on Friday to 71 cents, so the drop back towards those levels has already started.

Yet more activity around Capital & Regional (JSE: CRP)

This REIT seems to be hot property, but will Growthpoint be willing to sell?

Capital & Regional is a high quality REIT with a portfolio focused on the UK. Growthpoint (JSE: GRT) has a controlling stake in the REIT, so any attempt to acquire control of Capital & Regional would require Growthpoint to agree to sell. This is why NewRiver REIT is currently in negotiations with Growthpoint around what that price would be.

If there is an offer made to Growthpoint, it would trigger a mandatory offer to all other shareholders, so they would be able to tag along with Growthpoint for the ride.

Competitive pressure among buyers is always the ideal outcome for sellers and this seems to be the case here, with Praxis Group (a UK shopping centre owner) expressing interest in making a cash offer for all the shares in Capital & Regional. The difference here is that the expression of interest was sent to the board of Capital & Regional, so now that board must consider the takeover regulations in the process of supplying due diligence information to Praxis to evaluate a possible offer.

At this stage, Praxis has not provided Capital & Regional with the potential terms or price.

It’s still entirely possible that despite all this buyer interest, no deal may take place. Proceed with caution.

Karooooo is on a rampage this year (JSE: KRO)

After going sideways for a while, things are firmly on the right track again

Karooooo is the owner of Cartrack, so the group enjoys strong recurring revenue and usually quite good cash conversion, although it’s worth highlighting that the telematics devices in the vehicles are a significant investment in working capital.

The story of the latest quarter is certainly one of growth, with Cartrack subscribers up 17%. The rate of growth is also much higher than a year ago, with 75,910 net subscriber additions this quarter vs. 40,375 a year ago.

Subscription revenue is up 15%, so revenue per subscriber has dipped a bit. Still, that’s a great mid-teens growth rate.

The profitability story is the real highlight, with operating profit up 34% as both gross profit margin and operating profit margin expanded. This led to record operating profit of R287 million at a margin of 29%.

Part of this is the discipline around the activities outside of Cartrack. Karooooo thankfully gave up on Carzuka, a failed attempt to enter the used car market. Karooooo Logistics is also a positive contributor to profitability, with a solid uptick in operating profit from R5 million a year ago to R13 million in this quarter.

Guidance for FY25 is unchanged at this stage, with expected earnings per share of between R27.50 and R31.00.

As mentioned earlier, the working capital cycle of Karooooo can lead to some distortions in free cash flow conversion. In this quarter, despite the strong growth in profitability, free cash flow was only R83 million vs. R158 million in the comparable quarter. This is after adjusting for a reclassification of fixed deposits, which is the right approach.

Prosus gives the CEO a “moonshot” incentive (JSE: PRX | JSE: NPN)

I’m thoroughly enjoying the new approach at Prosus

Prosus seems to have learnt some excellent lessons after the painful experience of the previous management team. I’ve made it no secret that I really like what I’m seeing from new CEO Fabricio Bloisi. He’s a proper entrepreneur, not a corporate animal who knows how to survive long enough to bank the big bucks.

Speaking of the big bucks, Prosus is incentivising him like an entrepreneur as well. They call it a “moonshot” package and I love the concept. We should see more of this. In addition to the “normal” share awards, there’s the potential for him to earn $70 million in shares (yes, around R1.3 billion) if two conditions are met simultaneously by 2028.

The first is that the market cap of Prosus and Naspers combined must be doubled or better from 1 July 2024 to 30 June 2028 and maintained for at least one year after that. The second is that the total shareholder return must beat the 50th percentile of the defined peer group between 1 July 2024 and 30 June 2028.

These are tough conditions to meet, especially as Bloisi could be really unlucky with the market cycle in 2028 and 2029. Either way, the thought process alone is excellent. I have no problem whatsoever with corporate executives becoming billionaires, provided they act like entrepreneurs rather than corporate caretakers.

Reinet fund’s NAV has ticked higher (JSE: RNI)

This is always the pre-cursor to the holding company releasing its NAV

Reinet Fund’s NAV is a substantial element of the balance sheet of Reinet Investments, the listed company. The way Reinet reports is that the fund NAV is released first, followed by the listed company NAV. The direction of travel for the fund NAV is a strong clue for where the listed company NAV has gone.

Between March and June 2024, the NAV for the fund increased by 1.6%. That isn’t a rocketship by any means, but remember that this is a move for the quarter (so you could technically annualise it by multiplying by four) and this return is in euros. Reinet is designed to be a stay-rich offshore exposure, rather than a growth asset.

The major underlying exposures are Pension Insurance Corporation and British American Tobacco (JSE: BTI).

Little Bites:

• Netcare (JSE: NTC) has been very busy with share buybacks, having repurchased 6.5% of ordinary shares in issue since 2 February 2024.

• Shareholders in Grindrod Shipping (JSE: GSH) will receive their payments on 21 August and the company will delist from the JSE on 30 August.

• Pan African Resources (JSE: PAN) announced that the capital reduction has now become effective. This is a technical process that addressed certain issues related to previous and future dividends.

• EOH (JSE: EOH) has announced Ashona Kooblall as the new CFO of EOH, replacing Marialet Greeff who only served as CFO for a few months, having been with EOH since 2019 in various finance roles. Kooblall is an internal appointment, with her latest role having been CFO of iOCO, EOH’s largest operating division. Hopefully Kooblall will stick around for a long time as well as a good time.

• The listing of African Dawn Capital (JSE: ADW) has been suspended as financials for the year ended February 2024 were not published in time. The company expects to publish financials by 31 July and the integrated annual report by 30 August.