Video hasn’t killed the radio star at African Media Entertainment (JSE: AME)
HEPS has moved solidly higher
African Media Entertainment has released a trading statement for the six months to September. HEPS will be up by between 16% and 25%, coming in at between 240 cents and 260 cents per share.
No further details are available yet, so we have to wait for 29 November before we know exactly where the uptick came from. Either way, the radio assets must be doing well for the results to be coming out in this range.
No surprise at all: the Boxer issuance was oversubscribed at the top of the price range (JSE: PIK)
This is exactly what I suspected would happen
As I wrote in Ghost Bites and discussed in my Moneyweb podcast around the time that the pre-listing statement for Boxer was released, it felt to me as though Pick n Pay had priced the Boxer share offering to succeed. In other words, they were coming in a bit cheap, with an effective Price/Earnings multiple in the mid-teens.
That turned out to be the right view, with the offer multiple times oversubscribed at the very top of the offer price range. In other words, investors who put in bids below R54 per share will receive nothing. The guided range for the pricing was R42 to R54.
The question now is around how the Boxer share price will behave on listing date. Based on the success of this raise, I’m now even more convinced that the share price will move higher on the day of listing. Just be wary of it reaching silly prices well in excess of this capital raise. IPOs are very good at burning people who buy at hyped-up prices and then watch the share price wash away as reality sets in.
Burstone has released interim results – but they matter far less than the plan going forward (JSE: BTN)
It’s all about building the platforms
Property group Burstone is partnering with Blackstone in Europe and is busy negotiating with investors to put together a South African property platform as well. Along with a joint venture concluded by Irongate in Australia, this gives you an idea of how the group thinks: it’s all about building property platforms of scale with the right partners.
This suggests that the future could be brighter than this interim period, which saw distributable income per share decline by 3%. The modest increase in like-for-like net property income in Europe was offset by a combination of a small decline in South Africa and the impact of higher finance costs.
Importantly, the Blackstone deal is reducing the group loan-to-value ratio considerably.
At long last, Kore Potash has a signed EPC contract with PowerChina (JSE: KP2)
Now they need to raise the money
I can only imagine the celebration after getting this across the line. Kore Potash has been at it for ages, with extensive negotiations with PowerChina and plenty of on-the-ground work in the Republic of Congo, all while keeping the government on that side calm. It cannot have been easy.
The end result is a fixed price contract of $1.929 billion, which means the risk of cost overruns sit with PowerChina. It’s therefore not surprising that they took this long to perform adequate analysis on the project. A bad contract can sink a construction company.
Importantly, $708.9 million of the price is for building transportation links and utility pipelines, so there’s no reliance on state infrastructure. Such is life in frontier markets like the Republic of Congo.
The construction period is 34 months, so this is going to take a while as you would expect. Once commissioned, Kore Potash will need to the operating capacity to actually run the thing. PowerChina has put in a proposal in this regard, but this is separate to the EPC and Kore Potash is under no obligation to accept it.
Although one of the biggest pieces has now been put into place, the next step is just as important: getting the money. The Summit Consortium is expected to deliver a non-binding financing term sheet within three months. It’s hard to imagine that anything could go wrong here as Summit has been involved for so long, but stranger things have happened in deal processes. If it falls through, Kore Potash will need to find funding elsewhere.
To keep things ticking over, Kore Potash will pay $5 million to PowerChina under an “early works agreement” designed to get things started while everything is finalised. There are a bunch of other nuances in the agreement as well.
Those who punted at Kore Potash in the hope of a further share price pop on the announcement of a signed contract have been left wounded by the share price dropping 13% on the day of this announcement!
Lesaka boosts its Merchant Division with the acquisition of Recharger (JSE: LSK)
The platform strategy continues
Lesaka is one of the more interesting local groups in my opinion. They are building a fintech group through strategic acquisitions, with the latest being Recharger – a South African prepaid electricity submetering and payments business with over 460,000 registered prepaid meters and a focus on improving the landlord-tenant relationship.
The purchase price is R507 million, payable with a split of R332 million in cash and R175 million in Lesaka shares. There are two tranches payable a year apart. For each tranche, the Lesaka share price used to calculate the number of shares will be the three-month VWAP prior to each tranche. Finally, Lesaka will contribute R42 million to Recharger to repay a shareholder loan.
It works out to an EV/EBITDA multiple of 6x to acquire 100% of the company. That sounds like a decent deal to me.
There’s some momentum at Momentum (JSE: MTM)
The latest quarter looks decent, but watch the costs
Momentum has released an operating update for the three months to September. Group sales are measured by the present value of new business premiums (PVNBP), which increased by 5% overall and an impressive 25% in rest of Africa.
It was mainly Momentum Investments that drove this growth story. Momentum Retail volumes came in flat, but they did focus on higher margin products. Metropolitan Life’s volumes were lower. Momentum Corporate saw a decrease in single premium sales volumes that made it the worst division by far, with PVNBP down 21%.
Overall, it seems as though they’ve prioritised margin above volumes. That’s just as well, as expense growth was above inflation. They attribute this to the long-term incentive plans being more expensive thanks to a better share price, but there is also a strategic initiative underway to reduce costs and so they know there’s an issue. An 8% increase in direct expenses puts the net profit story under pressure.
It’s also worth mentioning that the higher-margin Momentum Medical Scheme saw a decrease in membership of 2%, pointing to affordability challenges for South Africans in having comprehensive medical aid.
I want to highlight India, as Momentum is one of the few local groups with business interests there. Earnings at Aditya Birla Health Insurance (ABHI) were only slightly up, with a 27% increase in gross written premiums offset by an increase in claims and management expenses.
Momentum is focused on the FY27 plan, which would see return on equity of 20% and normalised headline earnings of R7 billion if achieved. They believe that they can still get there.
NEPI Rockcastle is still doing well – but guidance for per-share growth isn’t exciting (JSE: NRP)
They are playing the long game here
NEPI Rockcastle has released a business update covering the first nine months of the year. Net operating income is up 12.3% overall and 8.4% on a like-for-like basis. The gap between those numbers tells you that they’ve been busy with acquisitions.
Before we get to the deals, it’s worth noting that like-for-like growth was driven by a 1.4% increase in footfall and an 8.3% jump in average basket size despite lower inflation. This is the benefit of operating in high growth regions where people are attracted to premium malls that aren’t nearly as common as we see in South Africa.
This is why the group has been very busy on the corporate front, as you need to act while things are positive. They raised €300 million in equity and €500 million in green bonds. They also disposed of their last remaining property in Serbia so they can focus on better markets.
Between these capital raises and a loan-to-value ratio of 30.7%, NEPI Rockcastle has plenty of firepower and they intend to use it. To add to the acquisition war chest, they offered a scrip dividend alternative that was elected by holders of 39% of shares in issue despite no discount being offered. If you aren’t familiar with how that works, it means offering shareholders more shares instead of a cash dividend – like a miniature capital raise!
If you’ve been around the property sector for a while, you’ll recognise that these activities lead to dilution for shareholders as new shares are issued. This is why the right metric to focus on is always distributable earnings per share, rather than just how big the overall group is. They have reaffirmed guidance that this metric will be 5.5% higher year-on-year for FY24.
The group’s track record suggests that the numerous corporate actions will lead to stronger long-term growth, even if there is some near-term drag.
A busy day of news at Ninety One – and this is highly relevant to Sanlam investors as well (JSE: NY1 | JSE: SLM)
The earnings definitely aren’t the highlight here
Ninety One released earnings for the six months to September. Despite suffering net outflows of £5.3 billion, closing assets under management (AUM) increased 1% to £127.4 billion.
Even though management fees net of operating expenses were flat, profit before tax fell 10% and HEPS was down 12%. It therefore wasn’t a great set of numbers to show the market, yet the share price closed 2.4% higher on the day thanks to an important strategic relationship being announced. And no, it’s never a coincidence when companies give the market a positive strategic update on the same day as disappointing numbers.
So, drumroll please… Sanlam and Ninety One have agreed that Sanlam will appoint Ninety One has its primary active investment manager for single-managed local and global products. It gets much better that that – Ninety One will acquire all the shares in Sanlam Investment Management, in which the Sanlam Group holds a 65.6% interest. In return, Sanlam will have a 12.3% stake in Ninety One!
There are other important steps being taken to cement the relationship, like Sanlam becoming an anchor investor in Ninety One’s international private and specialist credit strategies that meet its credit requirements.
The nuance here is that Sanlam will first remove all non-active asset management operations from Sanlam Investment Management and put them elsewhere in Sanlam Investments. They are therefore only selling off the active asset management business, effectively throwing it in with Ninety One and entering into a 15-year relationship agreement alongside the shareholding.
It’s still a massive transaction, with in-scope assets under management of R400 billion. For context, this adds around £17 billion in assets to Ninety One’s current business of £127.4 billion in assets.
Sanlam expects the deal to initially be earnings and dividend dilutive, with long-term benefits. This is a Category 2 deal for Sanlam, so shareholders won’t need to vote. Over at Ninety One, the issuance of shares to Sanlam to complete the deal means that a shareholder vote will be required.
A solid set of numbers at Primeserv (JSE: PMV)
This small cap has been on a charge
With a market cap of under R300 million, you would be forgiven for never having heard of business support services group Primeserv. The share price has almost doubled this year, so those who took notice of it have done very well.
For the six months to September, revenue increased 14% and HEPS came in 17% higher. That’s obviously a great outcome, although I must point out that operating profit was only up 9%.
Cash is always the ultimate test and Primeserv passed with flying colours, boosting the interim dividend by 20% to 3 cents per share. Now if only they would put a bit more effort in getting out there and telling their story!
British American Tobacco takes Reinet’s NAV higher (JSE: RNI)
They have a bunch of other assets in here as well
Between March 2024 and September 2024, Reinet saw its net asset value increased by 6.6%. Considering that’s only for six months and measured in euros, this was a solid period.
British American Tobacco did the heavy lifting, with great share price performance this year that lifted Reinet’s NAV. As at September, British American Tobacco was 24% of Reinet’s NAV.
This still pales in comparison to Pension Insurance Corporation Group, which is 52.6% of assets. This is an extremely strong unlisted company that pays regular dividends. Its NAV moved slightly higher over the six months.
Looking at the rest of the group, the remaining assets are found across various specialist investment funds. Reinet is designed to be a stay-rich investment holding company with hard currency exposure. Having managed 9% compound annual growth since March 2009, they’ve done a decent job of getting rich as well.
Local efficiencies helped RFG bank great profit growth off modest revenue (JSE: RFG)
Manufacturing is all about cost management
Food group RFG Holdings closed 8% higher after releasing results for the year ended September. The market thoroughly enjoyed seeing a jump in HEPS of 18.6%, even if revenue was up just 1.5%.
Achieving an income statement with that shape means that margins had to move higher. The regional segment is where the magic happened, with operating profit margin expanding from 8.8% to 10.6% thanks to a focus on gross margin and efficiency gains. The international segment saw margin decline by 160 basis points due to weaker pricing, but this is a much smaller segment so the net result was still positive.
This is therefore another good example of why companies like to diversify. It’s rare for all divisions to do well in any given year.
It also helped with the HEPS story that net interest expense was around 16% lower thanks to decreased debt levels. When profits move higher and finance costs come down, shareholders are smiling.
Although net cash flow generated from operations was 8.6% lower, this is because of the timing of the financial year being before the calendar month end and therefore the accounts receivable balance not being comparable to the prior year.
Tiger Brands sells the baby wellbeing business to an undisclosed purchaser (JSE: TBS)
This doesn’t include the baby nutrition business, which remains a core category
Tiger Brands is disposing of the baby wellbeing business in an effort to streamline the portfolio and focus only on categories where they believe they have an edge – or, as they call it, a right to win.
The selling price is R605 million plus all the inventories related to the business at the time of the transaction closing. They expect this to add another R25 million to the price.
There are a bunch of brands included in this deal, including Elizabeth Anne’s. The Purity brand is core to Tiger Brands and part of nutrition, but has some overlap with baby toiletries. The purchaser will be allowed to transition the use of the Purity brand to Elizabeth Anne’s over an agreed period of time.
In addition to the main baby deal, Tiger agreed to sell other brands to the same purchase for R135 million plus around R25 million in inventory. These include BioClassic, Kair and others.
The announcement doesn’t specify who the purchaser is, only noting that they are a leading South African manufacturer of home and personal care products.
Nibbles:
- Director dealings:
- With one of Adrian Gore’s collar transactions reaching maturity, he has sold shares in Discovery (JSE: DSY) worth around R110 million. This is because the share price exceeded the strike price on the call options as part of the structure, so the holder of the call options exercised the call.
- The CEO of Sirius Real Estate (JSE: SRE) bought shares through a self-invested personal pension to the value of nearly £3.3 million. A person closely associated to him also bought shares worth £44k. Take careful note of the currency there – it’s a large purchase!
- The spouse of a director of The Foschini Group (JSE: TFG) sold shares worth R748k.
- A director of Standard Bank (JSE: SBK) received a share award and sold the whole lot for R565k.
- A director of a major subsidiary of Goldrush (JSE: GRSP) bought shares for just over R200k.
- Labat Africa (JSE: LAB) is currently suspended from trading. This hasn’t stopped them from announcing a deal to acquire 75.55% in Classic International trading for R16.275 million. As for why Labat is expanding into the IT sector, I really cannot tell you. Profit before tax at Classic has been R11 million for the 8 months to Octoder. They are therefore getting it at a reasonable multiple, with the deal to be paid for through the issue of 232.5 million Labat shares at R0.07 per share – the pre-suspension price. The lifting of the suspension is a condition to the deal.
- AngloGold Ashanti (JSE: ANG) announced that the scheme of arrangement for the acquisition of Centamin has been sanctioned by the Jersey Court, which means the deal will shortly be unconditional. Centamin will therefore be delisted from the Toronto and London markets after AngloGold acquires all the shares.
- We now know where Hannes Boonzaier is going after resigning as CFO of AfroCentric (JSE: ACT). He has popped up as CFO-designate at ADvTECH (JSE: ADH) with effect from 1 February 2025.
- Vunani (JSE: VUN) has renewed the cautionary announcement related to the potential disposal of a minority shareholding in a subsidiary. There are no further details available.
