Alexander Forbes: good stuff at the top of the income statement, but what about HEPS? (JSE: AFH)
At least the underlying operations are doing well
Alexander Forbes has released results for the six months to September. Apart from lots of bullish commentary on how the two-pot system is just the greatest thing ever (can they even afford to have a different view?), there are also lots of numbers to consider.
The top half of the income statement looks solid, with operating income up 12% and operating expenses up 11%. Profit from operations increased 13% year-on-year. All of that sounds really good, except it’s a lot less exciting once we reach the bottom of the income statement where we find HEPS from total operations up by just 3%.
Although a higher number of shares in issue have played a role here, the impact of finance costs and a higher tax rate is also relevant.
Encouragingly, the group increased the payout ratio to achieve a 10% increase in the interim dividend.
Aveng sells a property stake to Collins (JSE: AEG | JSE: CPP)
This unlocks capital for Aveng’s core business
Aveng is selling its 30% stake in Dimopoint to Collins Property Group, which already owns the other 70%. The Dimopoint structure goes back to 2015, when Aveng sold its property portfolio to Dimopoint in what was effectively a sale and leaseback. This means that the main tenant in the portfolio was Aveng and they are still exposed to the head lease, an issue that this transaction solves.
Aveng will receive R96 million in cash for the 30% stake, so they are unlocking plenty of capital here. Notably, Aveng received dividends from the Dimopoint stake of R31 million for the year ended June 2024, so it seems as though Collins has picked up this stake for a great price.
Nampak’s revenue growth was blunted by the Diversified South Africa segment (JSE: NPK)
But the real story lies in the improvement to profitability
Nampak has released results for the year ended September. The share price is down 8.5% over 30 days, with the market reacting negatively to the recent trading statement and now these results. Although the turnaround is coming through really strongly at Nampak, it’s all about market expectations baked into the share price vs. the pace of delivery.
Nampak’s revenue from continuing operations grew by just 1%. Within that, you’ll find growth of 4% in Beverage South Africa and 7% in Beverage Angola, with an unfortunate decline of 7% in Diversified South Africa. The struggles in that segment were due to volume declines based on slower customer demand and other issues like an extended plant shutdown by a key customer.
When you reach the profit lines though, all the segments are up spectacularly. Beverage South Africa increased EBITDA by 38% to R806 million. Beverage Anglo jumped from R43 million to R276 million. Even Diversified South Africa saw EBITDA rocket from R15 million to R325 million despite the revenue pressure. It says a lot about the underlying performance that Nampak recorded impairment reversals rather than net impairment losses in this period!
Cash is what really counts of course, with cash generated from operations more than doubling from R741 million to R1.6 billion. This helped drive a decrease in net finance costs of 24% to R926 million.
With all said and done, HEPS from continuing operations for the year came in at R33.61. The share price is all the way up at R425, so perhaps there’s where the market concern has come in. There’s still far more improvement priced into the group.
If you include all the discontinued operations, then Nampak reported HEPS of R13.78. This shows just how important the asset disposal plan has been to get the discontinued operations out of the group.
The impact of new management is clear to see at Naspers – Prosus (JSE: NPN | JSE: PRX)
The entire narrative has changed – and for the better
I remember listening to the call that introduced Fabricio Bloisi to the market as the new CEO at Naspers / Prosus. I liked him immediately. Clearly, this was someone who had owned and operated businesses, not just written up pretty PowerPoints and convinced people to part with their capital. Winds of change were blowing.
The narrative at the group has shifted completely, with focus now on creating a profitable group rather than just growth for the sake of growth. When the focus is on metrics like EBIT rather than market share, you’re on the right track to clean up the portfolio.
Speaking of cleaning up, Prosus hasn’t been shy to sell down certain exposures. They have sold the stakes in Trip.com and Tazz, as well as Swiggy after the IPO. They only invested $290 million in external M&A in this period vs. a whopping $6.2 billion at the peak in 2022. This is no longer an approach of throwing everything against the wall to see what sticks.
Perhaps most encouragingly, the six months to September reveal profitable growth in the eCommerce business. They expect the full-year results to reflect revenue of $6.2 billion in eCommerce and adjusted EBIT of $400 million, which is a huge improvement on just $38 million in the prior year.
One of the highlights in the group includes order growth of 29% at iFood and an increase in adjusted EBIT of 85%. This is the business that Bloisi previously acquired, scaled and sold to Prosus, so it no doubt has a special place in his heart. With numbers like that, shareholders will feel the same love for it.
There are obviously hits and misses in a group this size, with other parts of the business not necessarily doing as well. The trajectory is clearly positive though, with this group giving us a great example of the difference that a CEO can make.
Within the Naspers numbers, I always look out for how Takealot is performing, as this is so relevant to South Africans. Takealot grew revenue by 11% in this period and Mr D was up 12%. They are facing a very competitive environment in South Africa.
The Prosus share price is up 34% year-to-date and Naspers is up 36.5%. Bravo Bloisi!
Standard Bank impacted by currency devaluation in Africa (JSE: SBK)
Reported earnings growth is in the low-to mid-single digits
Standard Bank has an impressive business in Africa. Sadly, the performance of African currencies is far less impressive, including against the rand. This means there’s quite a gap between constant currency results and reported results.
In a voluntary update for the 10 months to October, Standard Bank has flagged earnings growth in the mid-teens on a constant currency basis. That’s all good and well, but the weakness of African currencies means that this dilutes down to low- to mid-single digits when reported in rands.
There are some other reasons for the slowdown in earnings growth, like balance sheet growth that is lower than expected and non-interest revenue decreasing by low- to mid-single digits based on a high base for trading revenue that more than offset growth in fees and commissions.
For the full-year, they still expect revenue growth in the low single digits in rands, with an improvement in margins suggesting that earnings growth will be slightly higher. Group return on equity is in the target range of 17% to 20%.
Transaction Capital’s Road Cover disposal is in doubt (JSE: TCS)
The parties have extended the long stop date – for now at least
Transaction Capital’s disposal of Road Cover is subject to a resolutive condition. This is very different to a suspensive condition, which is what you see far more often. With suspensive conditions, a deal doesn’t close until the conditions are met. With resolutive conditions, the deal closes and then there’s a test later on to see if conditions were met. If they weren’t, you have to try unscramble the egg and restore the parties to the situation they were in before the deal. Not a fun process and hence a less common deal structure.
The resolutive condition refers to certain negotiations that are taking longer than expected. The parties have agreed to extend the long stop date to 13 December. If they miss that deadline, then it either needs to be extended again or the parties will look to be restored to the positions they were in before the disposal.
There’s never a dull moment at Transaction Capital!
Nibbles:
- Director dealings:
- A director of RFG Foods (JSE: RFG) sold shares in the company worth just over R4 million.
- Of the five Oceana (JSE: OCE) directors and executives who received share awards, only one retained shares after paying taxes. The rest sold all the shares worth a total of R2.2 million.
- A director of Standard Bank (JSE: SBK) has sold shares worth R1.9 million.
- A senior executive of Nedbank (JSE: NED) sold shares worth R1.2 million.
- An associate of a director of Boxer (JSE: BOX) has bought shares worth R445k at R63,50 per share. The price is especially important here given the recent IPO activity, as here we have an insider willing to buy shares at the post-IPO price. The same individual also bought shares in Pick n Pay (JSE: PIK) worth R300k, which is even more interesting.
- An associate of a director of Trematon (JSE: TMT) bought shares worth R130k.
- Zeder (JSE: ZED) has declared a special dividend of 11 cents per share based on the recent asset disposals by group companies that subsequently declared the proceeds up to Zeder as dividends. This allows Zeder to pass the benefit on to its shareholders.
- Unsurprisingly, Sasfin (JSE: SFN) shareholders have jumped at the opportunity to take the money and run at R30 per share. Sasfin’s listing on the JSE will be terminated on 30 December after shareholders receive a lovely Christmas pressie on 23 December in the form of their buyout consideration.
- Labat Africa (JSE: LAB) is in discussions with a party looking at a potential corporate deal with the group. One of the conditions is that the company secretary needed to be changed, which is particularly odd. Although there’s no guarantee of a deal going ahead, Labat Africa has changed its company secretary as requested. I guess the trading statement released on the same day makes it pretty clear that Labat isn’t sitting on tons of options, with the headline loss deteriorating by 26.14% to 7.19 cents. Keep in mind that the share is suspended from trading and the last share price was 7 cents. They aren’t exactly negotiating from a position of power here.
- I still don’t really understand the numbers behind Mantengu Mining’s (JSE: MTU) acquisition of Sublime Technologies, as it looks like a deal that is far too good to be true. It looks to be going ahead though, with the Competition Commission approving the transaction. The only remaining suspensive condition is that the sellers must ensure that Sublime’s bank account has at least $1 million in it.
- Trematon (JSE: TMT) announced that the conditions for the Aria Property disposal have been met, so the disposal of the 60% stake in that group is being implemented and they expect to receive the proceeds on 2 January 2025.
- Redefine (JSE: RDF) announced that holders of 42.81% of shares elected the share re-investment alternative instead of the cash dividend. This helps Redefine hang onto R668 million in cash. Of course, it also means that lots of new shares have been issued, so watch out for the dilutive effect over time here.
- Powerfleet (JSE: PWR) has had to file a prospectus with the US regulators regarding a potential sale of the shares received by the sellers of Fleet Complete and the shareholders who supported the private placement. There are up to 24.8 million shares that these shareholders will look to sell. With only 134 million shares in issue, this is a meaningful percentage of the Powerfleet register.
- If you would like to understand more about how property funds execute on their strategies and assess properties in a given area, Hammerson (JSE: HMN) has released a presentation on one of its properties that goes into great detail on how they think as a property asset manager. You can find it here.
- Castleview Property Fund (JSE: CVW) has absolutely no liquidity in its stock, so results for the six months to September just get a passing mention here. The distribution per share has decreased by 14.9% to 9.084 cents.
- AfroCentric (JSE: ACT) has announced the appointment of Thato Moloele as CFO designate. This comes after the resignation of Hannes Boonzaaier.
- Ascendis Health (JSE: ASC) has appointed Lihle Mbele as permanent CFO. She’s been the interim CFO since July 2024, so everyone was obviously happy with how that went and they pulled the trigger on making it a permanent placement.
- Numeral (JSE: XII) has acquired to acquire 51% in a biotechnology business called Longevity. It must be a tiny deal, as no further disclosures are required for the deal. With a market cap at Numeral of just R24.8 million, this gives you an idea of how small a deal needs to be to fall below disclosure thresholds.
- Sebata Holdings (JSE: SEB) has moved its listing to the General Segment of the JSE, following several other small- and mid-caps who have done so.
