Ghost Bites (Adcock Ingram | Cashbuild | Powerfleet | Sibanye)

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Margins under pressure at Adcock, but HEPS looks alright (JSE: AIP)

The final dividend per share has also shown some growth

In Adcock Ingram’s business, margins aren’t easy to manage. Apart from margin mix and how growth in different categories can lead to structural changes in group margin, there are also other issues like regulated prices for medicine. Even where revenue shows growth, gross profit may not follow suit.

This has been the case for the year ended June, where revenue was up 6% and gross profit was just 1% higher, which means gross profit margin fell. Despite a 6% drop in operating profit, they still managed to show 10% growth in HEPS to 616.6 cents. This is the power of share repurchases, particularly when a share trades at low multiples. Headline earnings was only up by 3.5%, yet on a per-share basis this jumps to 10% thanks to the sheer number of shares repurchased in the past year.

The same positive effect is seen on the dividend per share. The total dividend for the year is 275 cents, up 10% from 250 cents last year. The full benefit of the growth in the annual dividend is being felt in the final dividend, which jumped from 125 cents to 150 cents.

Looking at the segments, it was the Hospital segment where profit dislocated from revenue to the greatest extent. Revenue was up 8% in that segment, yet trading profit fell by 16%. As an example of a different shape elsewhere, Prescription saw revenue up 4% and trading profit up 10%. This is my point about how the mix effect can really impact the group numbers.

The market liked what it saw, with the share price ending the day 9% higher.

The bottom is hopefully in at Cashbuild (JSE: CSB)

I strongly believe that things will improve from here

After watching the Cashbuild share price come off sharply for no obvious reason in the past month, I pulled the trigger and got in at R143.65. So far, so good. I’m up around 14% in the space of a week – and that’s even after the drop in the share price after these earnings came out! Sometimes, the market gives you a gift.

You won’t understand my investment thesis on Cashbuild purely by looking at the trading statement for the 52 weeks to 25 June. HEPS will be down by between 20% and 30%, which by all accounts is awful. The point is that share prices (and thus investment returns) are based on what will happen in future, not what already happened.

There are three reasons why Cashbuild has had a torrid time: (1) very poor consumer sentiment in SA, especially for fixed property investment; (2) prioritising load shedding-related spend on homes (e.g. solar) over other projects; (3) high interest rates. Two of the three problems have improved dramatically in recent months and interest rates are going to start dropping as well.

This is why I believe that the worst is now behind Cashbuild and I’ve positioned myself accordingly. The solar providers had their time in the sun, literally. It’s time for people to start adding on rooms and doing new floors again.

Powerfleet’s results are out in the wild (JSE: PWR)

After some hurdles along the way, the first quarterly results after the MiX Telematics deal are available

Powerfleet’s life as a merged company didn’t get off to the easiest start, with the SEC conducting a review of the accounting methods applied to the business combination with MiX Telematics. With the review complete, Powerfleet has been able to file its quarterly results and can now breathe a sigh of relief.

This results covers the three months to June, which is the first quarter of the 2025 fiscal year. For now, they’ve only issued a press release with the highlights of the quarter. The detailed 10-Q filing hasn’t been made available yet, but it looks like it should still come out this week based on previous communication from the company.

For now, we know that revenue is up 10.2%. Prior year comparison numbers have been adjusted for the merger, so that’s a real metric that is useful to investors. Adjusted gross profit was up 9%, so there’s some margin compression there. Not so on the adjusted EBITDA line though, which jumped 52.2% thanks to cost synergies.

The merger allowed for duplicated support functions to be removed, paving the way for $8.7 million in annualised savings and a 30% increase in the sales force in coming months, funded by the reduction in overheads. The target for total cost savings is $27 million.

Just be careful of how US groups tend to report adjusted EBITDA, as they are notoriously good at reversing out expenses that South African listed companies include in HEPS. You can immediately see this when you look at Powerfleet’s adjusted EPS of precisely $0.00 for the period. Without adjustments, they reported a net loss to stockholders.

There’s a big chunk of debt on the balance sheet, so that’s not doing any favours for EBITDA to EPS conversion either, as there are interest bills to be paid.

They’ve updated full year guidance for 2025, but not in a way that is terribly useful. They simply expect to exceed the previous guidance of $300 million revenue and $60 million adjusted EBITDA, with no information on the extent to which they will exceed it.

More balance sheet news at Sibanye – this time for Keliber (JSE: SSW)

There’s been a lot of corporate news coming out of the company this year

Sibanye-Stillwater has managed to complete the full financing requirement for the Keliber lithium project, achieved through the raising of a €500 million green loan financing facility. For a transition metal located in a country like Finland, a green loan was always going to be the right option.

The Finnish state owned Export Credit Agency has guaranteed 80% of a tranche of €250 million coming from a bank. The European Investment Bank has put up €150 million. Finally, there’s a €100 million syndicated commercial bank tranche. The facilities are governed by a Green Financing Framework and they have achieved a Medium Green classification from S&P Global ratings. There’s an entire industry around this stuff, ranging from advisors and verification agents through to lenders themselves, not to mention the likes of Bank of America who acted as the green loan coordinator.

There was no shortage of demand from lenders, with the syndicated loan being oversubscribed. 7 banks eventually participated, with maturities of 7 to 8 years and variable interest rates linked to EURIBOR.

Together with previously raised equity of €250 million, this means there is enough for the total capital requirement of Keliber of around €667 million. They will now begin the construction phase to work towards production of battery-grade lithium hydroxide.

Little Bites:

• Director dealings:
  • A director of NEPI Rockcastle (JSE: NRP) bought shares worth €675k.
  • Stephen Koseff (one of the founders and the ex-CEO) sold shares in Investec (JSE: INL | JSE: INP) worth £188k.
  • A director of Kumba Iron Ore (JSE: KIO) sold shares worth R881k.
  • A director of Orion Minerals (JSE: ORN) acquired shares in the company worth $15.3k.
  • An associate of two directors of Astoria Investments (JSE: ARA) entered into a CFD position on the stock worth R152k.

• Bell Equipment (JSE: BEL) has confirmed that interim results will be published before 12th September, which is the date of the general meeting to vote on the all-important offer to shareholders. Mind you, they won’t beat that date by much, with a plan to release earnings on the 9th. They also made a correction to the dates of trades by concert parties, with some interesting analysis doing the rounds on X regarding the shape of Bell’s shareholder register. This deal is by no means a foregone conclusion.

• There’s no luck for MAS (JSE: MAS) shareholders on the proposed restructure, which I felt was quite a clever deal with Prime Kapital that would’ve solved some of the balance sheet challenges. Sadly, the parties couldn’t reach an agreement and so the deal has been called off and the cautionary withdrawn.

• Premier Group (JSE: PMR) announced that Titan Premier Investments, a major investment entity of Christo Wiese, now holds a beneficial interest in 45.6% of the shares of the company. This is because of the corporate activity related to the capital raise at Brait. The direct stake in Premier remains 31.5%.

• South32 (JSE: S32) updated the market on the sale of Illawarra Metallurgical Coal, with that transaction now expected to complete on 29 August 2024.

• After quite a scare, Mantengu Mining (JSE: MTU) has confirmed that it has protected its original investment value in relation to the Birca Copper Mine fiasco. Mantengu subsidiary Meerust Chrome has entered into a lease agreement and various other agreements that allow it to legally and commercially operate under the mining right. Affected employees are being hired to maintain jobs while the rest of the mess is navigated, with Birca in business rescue thanks to previously undisclosed liabilities. Mantenge is still exploring all its legal rights in this regard.

• Barloworld (JSE: BAW) has renewed the bland cautionary announcement. As the name suggests, a bland cautionary has no real details about the underlying transaction being considered. In this case, all we know is that Barloworld is talking about something important with someone out there. If those talks go well, it could impact the share price. Hence, trade with caution!

• Oando Plc (JSE: OAO) has very little liquidity on the local market, so the share price didn’t even react to the news of the $783 million acquisition of Nigerian Agip Oil Company being completed. The transaction is immediately cash generative and significantly increases Oando’s reserves.

• There’s no liquidity at all in Globe Trade Centre (JSE: GTC), so I’ll only give the results for the six months to June a passing mention. Revenue increased 3% and funds from operations was ever so slightly higher. The loan-to-value at 48.2% is on the high side, but is at least better than 49.3% at the end of December 2023.

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