Anglo says goodbye to steelmaking coal – and hello to $4.9 billion in potential cash proceeds (JSE: ANG)

The substantial changes to Anglo’s business continue

In the aftermath of BHP’s failed attempts to get a deal with Anglo American in front of shareholders for a vote, the Anglo board has had to scramble to deliver their stated value unlock strategy. The latest development in that regard is an agreement to sell the steelmaking coal assets to Peabody Energy for up to $3.8 billion, adding to the $1.1 billion expected from the already announced sale of the interest in Jellinbah.

These are two separate deals, so just keep that in mind.

The Peabody deal is structured as a $2.05 billion upfront payment, along with $725 million on a deferred basis and up to $550 million in price-linked earnouts. There’s also $450 million linked to the reopening of the Grosvenor mine. So, even if the deal closes, the total cash proceeds are still highly dependent on some underlying conditions.

This takes Anglo American a step closer to being a copper, iron ore and crop nutrients business. Along with the steelmaking coal disposals, they plan to demerge Anglo American Platinum by mid-2025 and sell the nickel business, with the process “well progressed” on that asset.

They also hope for a good outcome with De Beers, although the current trends in the diamond market are anything but promising. As you might have noticed last week, the pullback in capex at De Beers due to uncertainty in the diamond market just contributed to Murray & Roberts going into business rescue. I wouldn’t bet on a happy outcome for the overpriced stones.

A hard year for Barloworld, yet the dividend is up (JSE: BAW)

At least Mongolia is headed firmly in the right direction

Barloworld has released results for the year ended September 2024. The first highlight is that gross debt reduced by 29%. When a company starts with news about debt, you know that the income statement probably went the wrong way. Indeed, revenue fell by 6.9% and operating profit from core trading activities was down 12.6%. This sent HEPS from continuing operations 12% lower and HEPS from group operations down 21%.

Thanks to having a dividend policy of target dividend cover of 2.5x – 3.0x (calculated as HEPS/dividend), Barloworld was able to push the full year dividend 4% higher to 520 cents per share despite the drop in profits.

A quick look at the segmental report shows that revenue in Southern Africa fell 10.8% and operating profit was down 10.5%, so margins were consistent even in a period of lower revenue. They are coming off a period of heavy investment in replacement machinery by customers, so this is a typical cyclical move for them.

Ingrain also doesn’t have a great story to tell, with revenue down 0.7% and operating profit down 16%. Margins are far more sensitive to overall levels of revenue in that business.

As you might expect, revenue in Russia fell 20.7% and margins couldn’t survive that fall, with operating profit down 35.3%. The independent auditor’s report goes into great detail on the Russian assets, including the potential export control violations (remember the self-disclosure to the US Department of Commerce, Bureau of Industry and Security?) and the recoverable amount of the Russian assets, given an expectation of less activity and productivity in the next year. It’s tough on that side.

The highlight was therefore Mongolia, up a juicy 68.5% on the revenue line and 43.6% in operating profit. This is leading to a juicy earnout for the sellers of the Mongolian business.

With the Russian overhang, it’s not super surprising that the people who might take Barloworld private are insiders – the current CEO and a large existing investor. The market is waiting to hear more about whether there might be an offer on the table.

Boxer’s share register has been settled (JSE: BOX | JSE: PIK)

Pick n Pay retains a stake of 65.6% in Boxer

As announced last week, there was a feeding frenzy by institutional investors for the issuance of Boxer shares. The offer was oversubscribed at the very top of the offer range, which means institutions will get shares at R54 per share. I expect the share price to do very well on its first day of trading, given the level of demand here and hence the low allocation that institutions got relative to what they actually wanted.

The implied market cap of Boxer is R24.7 billion, with R8.5 billion raised through this process. Pick n Pay will hold 65.6% of Boxer and the new shareholders will have the rest. It’s quite something that this puts Boxer’s market cap above that of Pick n Pay!

Importantly, Boxer cannot issue any more shares for 365 days. There’s also a lock-up of Pick n Pay’s shares and shares held by members of senior management for 180 days. If Pick n Pay plans to sell shares into the market to fund their recovery, they will have to be patient.

With a solid mix of local and international investors and clear support among institutional investors, the group is in a good position going forward. I just wish Boxer had made space for retail investors to apply for shares at this price through a dedicated programme. Companies need to work harder at financial inclusion in South Africa.

Delta Property Fund seems to have stabilised – admittedly on a knife-edge (JSE: DLT)

They keep chipping away at a tough situation

Delta Property Fund has released results for the six months to August. With a loan-to-value ratio of 60.0%, things are tight to say the least. The good news is that the ratio is at the same level as a year ago, so things aren’t getting worse.

That consistency also comes through in distributable earnings per share, stable at 8.1 cents. Given the state of the balance sheet, I’m afraid that there’s no dividend for shareholders.

They really are doing their best to try and claw things back, evidenced by metrics like property operating expenses increasing by just 0.5% and administrative expenses down 2.8%. If any improvement in demand for B-grade office space does come through, they will be well positioned to finally have an easier time of things.

Until then, all they can do is manage costs and try and sell off buildings that have poor occupancy rates, reducing debt along the way. Lenders will hopefully come along for the ride, as there are still various funding facilities due to expire this financial year that need to be extended.

eMedia Holdings proves that you can make money from TV (JSE: EMH)

Perhaps MultiChoice should take some notes here?

eMedia Holdings has reported a set of excellent interim numbers for the six months to September. Advertising revenue came in 7.1% higher, so the audience is valuable. Although other revenue dipped 3.1%, they still managed a 16.2% increase in operating profit and a 14.9% jump in HEPS. The dividend has gone the other way though, down 22.2%.

Of course, the improvement in advertising is thanks to the disappearance of load shedding. If people can actually turn their televisions on, it’s amazing how much more content they will consume! It’s still incredible to think about just how terrible things used to be.

On the negative side, the Media Film Service business has still not fully recovered from the writers and actors’ strike in Hollywood. They expect to see some improvement in the second half of the year based on international productions coming to our shores.

While MultiChoice is out there betting the farm on building out an African streaming offering and hoping that the deal with Canal+ will go through, eMedia is finding clever ways to compete in the market. Hopefully, with load shedding now behind us, the share price can start to reflect this.

Frontier’s numbers have been impacted by a major investment programme – electric buses are here! (JSE: FTH)

They are playing the long game

Frontier Transport Holdings, owners of Golden Arrow Bus Services, reported an 18.6% increase in revenue for the six months to September. Despite this, HEPS increased by just 0.5%! What happened in the middle?

Before we get to that, at least the ordinary dividend was up 7%. The payout ratio was increased and the dividend came in at a respectable growth rate as a result.

One of the reasons for the low increase in profit relative to revenue is that operating expenses were up 20.4%, so EBITDA only came in 11.6% higher as margins were compressed. We then have to deal with depreciation and interest, both of which moved higher. Finance costs have increased based on instalment sales obligations to finance bus acquisitions, while finance income fell due to lower cash reserves after the payment of a special dividend.

Speaking of bus acquisitions, Frontier has invested in 120 electric buses from the BYD group. This is obviously a major investment that should pay off over time in the form of lower running costs. Investors didn’t get much in the way of profit growth this year, but this management team knows what they are doing as we start to enjoy a cycle of decreasing interest rates.

Invicta hurt by the strong rand – now there’s something you won’t read every day! (JSE: IVT)

Rand hedge stocks with international businesses work against you when the rand strengthens

Invicta has released results for the six months to September. Revenue was up by just 2% and operating profit increased by 11%, so the group did a solid job of turning limited revenue growth into a decent result for profitability. The 11% growth in profit is before forex movements though, which is where things go wrong for the numbers in this period.

Due to the rand strengthening against major currencies and especially the dollar, there’s a forex loss of R18 million in this period vs. a forex gain of R33 million in the prior period. The offshore expansion strategy has made Invicta a far more interesting and diversified group, but it does leave them vulnerable to a period in which the rand improves. I wouldn’t take our GNU year and extrapolate it into the future for the rand though, so I don’t think we will see many more severe moves like these.

Once the forex is taken into account, HEPS fell by 14%. Regardless, the share price is up 23% year-to-date as the market looked past the rand and got excited about global growth prospects in a decreasing interest rate environment.

Strong EBITDA growth at Netcare and a decent uplift in the dividend (JSE: NTC)

Mental health paid patient days are still growing faster than acute hospital days

Netcare has released results for the year ended 30 September. Revenue was up 6.3%, which was enough for normalised EBITDA to be 12.6% higher. By the time you reach the bottom of the income statement, profit for the year was up 15.8%.

HEPS as reported increased 11.9%, so you might be hoping for a double-digit increase in the dividend. Alas, adjusted HEPS was up 7.6% and that’s the basis on which they pay dividends, so the total dividend was 7.7% higher. That’s still ahead of inflation at least, as one would hope from an equity investment.

Revenue growth was underpinned by pricing increases and a 0.3% increase in paid patient days. If you dig one level deeper, you find that acute hospital paid patient days were up just 0.2%, while mental health was up 1.3%. The mental health business is still much smaller than the acute hospitals business, but is running at excellent occupancy rates.

The blemish on the result is the Primary Care segment, which saw operating profit fall 6.1% despite a 7.4% increase in revenue. There was a 3.1% decrease in medical and dental patient visits. It seems that Doctor Google is winning market share.

Net debt to EBITDA is steady, with a 5.5% increase in net debt excluding lease liabilities. It would be helpful to Netcare if interest rates kept dropping.

Oceana’s second half is a reminder that the oceans aren’t an easy place to make money (JSE: OCE)

The first half of the year was much tastier than the full-year numbers

When Oceana reported interim numbers for the six months to March 2024, they saw revenue growth of 12.1% and operating profit up 57.1%. It was a stellar set of results. Fishing is unfortunately a lot less predictable than we would like, so the release of full-year numbers has shown us that the second half was a different story entirely.

Full-year revenue is up just 0.7% and operating profit has climbed 9.5%. Although HEPS is 13.5% and the dividend is up 13.8% (a growth rate that nobody can complain about), investors can only wonder what might have been.

With a variety of seafood businesses in the group, there are always some that do well and others that came under pressure. For example, Daybrook in the US achieved record earnings in this period, contributing 72.2% of group operating profit for the year. Lucky Star enjoyed margin expansion, with operating profit up 23.7% despite revenue only increasing 0.3%. The hake operations went the right way. The same can’t be said for African fishmeal and fish oil (profit down 47.3%), as well as horse mackerel.

A dip in cash profits in South Africa put the balance sheet under a bit of pressure in terms of working capital. Combined with a higher capital expenditure programme, this led to net debt increasing by R546 million to R2.58 billion at the end of the period. The net interest expense increased from R192 million to R226 million.

It’s very difficult to forecast how market prices might change for the underlying seafood products. Supply and demand is so unpredictable in this space. Oceana can only focus on controlling their controllables, like ensuring that the wild caught seafood business has a reliable and adequate fleet to improve performance.

Octodec sees a drop in distributable income per share (JSE: OCT)

The dividend is therefore lower as well

Octodec has one of the most diverse property portfolios that you’ll find anywhere. They even have a significant portfolio of residential property, something that you won’t see often in the listed space.

Being diversified isn’t always a good idea of course. Distributable income per share for the year ended August fell by 7.5% and the dividend per share was down by the same percentage to 125 cents. Based on the current share price, this puts Octodec on a trailing yield of 10.3%.

The exposure to areas like the Johannesburg CBD is difficult. Octodec specifically references the unrepaired damage on Lilian Ngoyi Street, with tenants exposed to the site finding it very difficult to operate. This is such a good summary of how poorly managed Johannesburg still is, with government continuing to let the team down.

Another challenge is the exposure to government tenants in the office portfolio. Octodec suffered a negative reversion of 23% on a renewal by a large government tenant. If only government could fix roads as effectively as they negotiate leases!

Octodec expects growth in distributable income per share of between 3% and 5% in FY25, driven by factors like reduced interest rates.

Super Group jumps on news of a potential sale of SG Fleet in Australia (JSE: SPG)

After a tough year for the share price, this is the boost they needed

Super Group’s share price has been taking serious strain this year based on the challenges in the used car space and the German economy in general, as Super Group has significant business interests up there.

The latest news doesn’t help the German economy or that business in the slightest, but it might lead to a solid value unlock for shareholders thanks to a potential sale of SG Fleet in Australia. Pacific Equity Partners and affiliates have swooped in, looking to buy 100% of SG Fleet at a price of AUD3.50 per share.

Super Group has a 53.584% stake in SG Fleet and they believe that the price is compelling enough to justify entering into exclusive discussions and a due diligence process.

SG Fleet was trading at AUD2.68 per share before the news broke, so this offer price is a premium of around 30%. It was enough for Super Group to rally approximately 20% on the news, eventually closing 14.4% higher.

Unless there’s a typo in the announcement (and I strongly doubt there is), the prospective buyers have until 29 November (yes, just a few days) to get far enough in a due diligence to achieve a binding offer. If you’ve ever wondered why investment bankers work such stupid hours, now you know.

Nibbles:

• Director dealings:
  • The non-executive chair of Primary Health Properties (JSE: PHP) has bought shares in a dividend reinvestment plan to the value of £3.4k.

• Tiny cap Nictus (JSE: NSC) – the market cap is just R38 million – has released a trading statement for the six months to September. They expect a huge jump in HEPS from 6.94 cents to between 25.82 cents and 27.20 cents! That’s for just six months, so comparing those numbers to the share price of 71 cents becomes even more ridiculous.

• YeboYethu (JSE: YYL) has released results for the six months to September. This is the B-BBEE structure linked to Vodacom. To give you an idea of how highly leveraged these structures tend to be, dividend income from Vodacom was R326.2 million and finance costs were R362.2 million! Despite this, the structures inevitably allow for ordinary dividends along the way, hoping that the underlying Vodacom share price will perform well enough to cover off debts when the structure matures. This is why there’s an interim dividend of 96 cents per share. For context, the YeboYethu share price is R20.

• Metrofile (JSE: MFL) announced that independent non-executive chairman Phumzile Langeni will be taking on a new role of executive deputy chairman, with a defined scope of responsibilities focused on strategy and business development opportunities locally and in Africa. Lindiwe Mthimunye, an existing non-executive director, will take on the non-executive chairman role.

• AYO Technology (JSE: AYO) announced that Pride Guzha will be leaving as CFO to take up the role of CEO at Sizwe Africa IT Group, a 55% owned subsidiary of AYO. Valentine Dzvova will replace him in the role.