AngloGold’s acquisition of Centamin gets the green light from Egyptian regulators (JSE: ANG)

It’s always good to get the regulatory approval out of the way

In September, AngloGold announced the acquisition of Centamin, a gold producer that owns the Sukari gold mine in Egypt as its flagship asset. This acquisition is being paid for with a combination of shares and cash, with Centamin shareholders being rewarded with a juicy premium along the way.

It’s a really important deal for AngloGold, so the parties involved must be thrilled to announce that the Egyptian Competition Authority has given its blessing for the deal.

There are a bunch of other conditions that still need to be satisfied of course, with the deal still running in line with the timetable that was included in the circular.

British American Tobacco gears up for a capital markets day (JSE: BTI)

An army of ESG consultants has no doubt been creative with new terms

British American Tobacco has historically made a living by selling people a product that is extremely bad for them. In an effort to wash away this inconvenient back-story, they come up with ESG-friendly terms like Building a Smokeless World, which I find hysterical when I think of what vaping looks like. If you visit the British American Tobacco website, you would think that they are a renewable energy company that dabbles in unicorns and butterflies. I’m quite sure that this approach will only be reinforced at the capital markets day being hosted on 16 October.

They are on track to deliver low-single digit organic revenue and adjusted profit from operations growth in FY24. Currency translation is expected to be a 5% headwind if spot rates continue. They reckon that by 2026, they will be at 3% to 5% organic revenue growth and mid-single figure adjusted profit from operations growth.

Essentially, they achieve this through pricing increases on a product that people are addicted to. Nonetheless, because the ESG industry is largely a tick-box exercise rather than an attempt at genuine impact (and ESG investment indices are especially guilty of this), British American Tobacco features strongly in ESG-friendly funds.

Bytes is growing strongly but it remains a highly competitive sector (JSE: BYI)

You can see this coming through in some of the margin pressures

Bytes Technology has released results for the six months to August and HEPS growth of 19.5% in hard currency is something to be proud of. The interim dividend is up 14.8%, so the payout ratio is lower but there’s still great mid-teens growth on the table for investors.

One of the worries around Bytes is the level of competition in the IT sector and how this impacts margins. You have to read the results very carefully, as Gross Invoiced Income (GII) was up 13.7% but Bytes’ revenue fell by 2.9%. This suggests a shocking move in margins, yet the real reason is that hardware sales are booked directly into revenue whereas software sales go into GII first, so a period of lower hardware sales relative to software will have that impact. It doesn’t necessarily mean that software margins are getting worse, although I certainly wouldn’t bet on them getting better.

Oddly enough, because of the lower sales in hardware, the gross profit line grew 9% and thus gross margin (gross profit as a percentage of revenue) increased from 69.3% to 77.8%. If you worked it out as gross margin as a percentage of GII, it would’ve deteriorated. It’s all about understanding the hardware vs. software dynamic and how it all lands on the income statement, while not being blind to the risks to margin as Bytes does an increasing amount of work in the highly competitive public sector in the UK.

Encouragingly, operating profit grew by 16.3%, so there’s no debate around this line item: Bytes controlled its costs and grew its operating margin.

The stronger rand hasn’t been kind to Bytes as a rand hedge, with the stock down 23% year-to-date.

Record earnings and a stronger outlook at Karooooo (JSE: KRO)

They are delivering on the growth promises that shareholders had to be patient for

Unlike for most technology companies, the pandemic was a major setback for Karooooo. The group had just expanded into Asia and had spent money setting up a sales function, only for the world to remain closed for far longer than anyone expected. This led to some tough results in which growth really faltered, although that’s a distant memory now thanks to record earnings in the latest quarter.

Growth in adjusted earnings per share of 31% year-on-year is why investors enjoy this company, driven by a 17% increase in subscribers. The rate of growth in subscribers has also ticked higher, with the number of net additions up 18%. If you think about it, the number of net additions has to keep growing in order for the growth rate in total subscribers to remain appealing, as the denominator (total number of subscribers) is increasing all the time.

Subscription revenue was up 15%, so there’s a slight dip in average revenue per subscriber but currency impacts are at play here.

Operating profit grew 22%, so the income statement is more efficient than it was a year ago. It’s certainly worth highlighting that Cartrack’s operating profit was only up 16% (admittedly to record levels), so the rest of the growth came from improvements in Karooooo Logistics and the group walking away from the silly distraction of Carzuka.

Perhaps best of all, Karooooo has revised guidance for the 2025 full-year. The number of subscribers should be between 2.3 million and 2.4 million, up by 100k vs. previous guidance. Subscription revenue should be R3.95 billion to R4.15 billion, up R50 million. Operating profit margin is expected to be between 27% and 31% and adjusted earnings per share should be between R27.50 and R31.00.

Despite the stronger rand and the extent of offshore earnings at Karooooo, the share price is up 52%! Although I’m annoyed that I reduced my stake in the company when things got tough, hindsight is always perfect. I held onto a portion of my shares in the hope that things would come right and I’m really glad that I did!

Tsogo Sun buys a further stake in Monte Circle from HCI (JSE: TSG | JSE: HCI)

This removes the final group cross-holding

Tsogo Sun owns Montecasino (and a whole bunch of other assets obviously), along with 25.335% in the Monte Circle property. Mothership Hosken Consolidated Investments (HCI) also has a 25.335% stake in the property, which doesn’t make a lot of sense. They are now sorting that out by Tsogo Sun buying the HCI stake in a related party deal. The reason for it being a related party deal is that HCI holds roughly 50% in Tsogo Sun.

This consolidates the group’s interests in Monte Circle in a single structure, with Tsogo paying R163 million for the additional 25.335% stake. There’s an additional R2.45 million that needs to change hands due to historical shareholder loans.

As this is a small related party deal, there is no shareholder vote required provided that an independent expert opines that the deal is fair. Valeo Capital has given this opinion and hence the deal will go ahead.

Nibbles:

• Director dealings:
  • Directors and associates of Hammerson (JSE: HMN) bought shares via a dividend reinvestment plan to the value of £8.2k.

• Dividend alternatives are all the rage in the property sector, but Fortress Real Estate (JSE: FFB) stands out with a particularly interesting one. This isn’t a cash or Fortress shares election. No, in this case shareholders will choose between cash or NEPI Rockcastle (JSE: NRP) shares as Fortress continues to offload its 16.1% NEPI stake strategically.

• Despite all the good stuff achieved at Nampak (JSE: NPK) since new management took over, holders of 11.24% of shares voted against the resolution giving the company specific authority to issue shares to top executives at the share price that was in play before all the restructuring happened, thereby making up for the fact that the full incentive package wasn’t implemented in time. This negative vote wasn’t enough for the resolution to have failed, but I do wonder what the justification would be to vote against what seemed like a reasonable resolution to me.

• MTN (JSE: MTN) shareholders have approved the resolutions required to extend the MTN Zakhele Futhi (JSE: MTNZF) scheme. The vote was almost unanimously in favour of the transaction. There are still some conditions to be met, but that’s a big one out of the way.

• BHP (JSE: BHG) achieved decent take-up of the dividend reinvestment plan, with holders of roughly 5.5% of shares in issue saying yes to more shares in lieu of cash dividends.

• Tiny AH-Vest (JSE: AHL) has released its financials for the year ended June 2024. Revenue was up 12.2% and operating profit nearly doubled, with HEPS up from 1.35 cents to 3.88 cents. These are still very small numbers overall, with operating profit of just R8.2 million. The last traded share price in this illiquid stock was 10 cents, so it’s on a rather modest P/E! With a market cap of R10 million, I have no idea why it remains listed.

• aReit (JSE: APO) is still suspended from trading as the annual financial statements for the year ended December 2023 haven’t been released yet. They expect to publish them by the end of November, with the audit process still underway.