Welcome to the new Ghost Bites. Startups are all about experimentation and this one is no different. After much introspection, I felt that it was time for a change.

When I first built The Finance Ghost as a concept and a brand, it was all about delivering great insights in a fun and accessible way. Merging the InceConnect and weekly Ghost Mail publications was incredibly tricky and I feel that I swung too far towards “the news” rather than “the stuff you won’t read elsewhere” – and we all know which one is better.

So here we are. It’s time to have fun again!

If you enjoy Ghost Bites, then make sure you’re on the mailing list for a daily dose of market insights in Ghost Mail. It’s free! SIGN UP >>>

Ghost Bites will still be a daily article. It will still focus on JSE news and will cover the biggest and most interesting news rather than all the news. If you got bored reading about British American Tobacco’s daily buybacks, imagine how I felt writing about them!

Don’t worry – if there’s a story you should know about on the JSE, chances are good that it will be in Ghost Bites.

But if you’re wondering what the exchange rate will be for your next dividend from Richemont, then you won’t find it here anymore. I’m only going to focus on the juicy stuff.

ARC needs a new performance benchmark

Rain has surpassed R1 billion EBITDA and Fledge Capital achieved a 78% IRR on the disposal of WeBuyCars to Transaction Capital

At the moment, ARC’s performance benchmark is on par with using me as a benchmark for the 100 metre sprint. It’s hardly difficult to outperform.

All they need to do is beat a 10% hurdle and they will earn performance participation shares in the investment manager. Based on how things are going with interest rates, you’ll soon be able to beat that with a decent fixed deposit.

Thankfully, shareholders will have the opportunity to approve a new fee structure at the AGM. This will be based on actual costs incurred by the asset manager plus a 5% profit margin. Here’s the bad news though: the 10% hurdle is the new structure. The previous structure had no hurdle whatsoever!

With ARC’s share price down by nearly a third over five years, the money has been made by the investment manager rather than the shareholders.

The intrinsic net asset value (INAV) per share increased by 14.7% in the year ended June 2022. As always, there were significant movements within the portfolio that I highlight below.

The fund sold Afrimat shares for R740 million and pumped R362 million into Kropz Plc during the period, funding the operational cash shortfall at Elandsfontein. R56 million was invested in Rain this year, which isn’t much when you consider that the spectrum auction participation was R1.43 billion. Rain achieved its budgeted EBITDA of R1 billion for the year ended February 2022.

On the financial services side (and remember that ARC Fund holds 49.9% in ARC Financial Services), ARC FS acquired 37.33% of Crossfin for R415 million and invested an additional R303 million into TymeBank. You may recall that TymeBank also received $142.5 million from Tencent and other investors. Tyme Global received $37.5 million as part of the same process.

Here’s another fun fact: Fledge Capital (another ARC investment) achieved a 78% IRR on its disposal of WeBuyCars to Transaction Capital. As private equity investments go, that’s phenomenal.

Attacq’s dividend is back

Gearing is down and a dividend of 50 cents per share has been declared. Exposure to Cell C is the blemish on this result

I hold Attacq in my portfolio. It hasn’t delivered the share price recovery I hoped for in the past year or so, with a flat performance. A distribution of 50 cents per share was still largely ignored by the market, with the share price closing at R6.74.

The balance sheet is healthier (gearing is down to 37.2% from 43.3%), with the proceeds of R850 million from the sale of the Deloitte head office and R444.5 million from the Equites transaction used to reduce debt. The net asset value (NAV) is up to R17.49. You don’t need to get the calculator out to see that the discount to NAV is large.

As a reminder, Attacq is synonymous with Waterfall City in Midrand. It also holds a 6.5% stake in MAS P.L.C. and some investments in Africa that it is trying hard to sell, along with co-investor Hyprop. Ironically, that’s the other property fund in my portfolio.

Attacq breaks down its distributable income by portfolio. Waterfall City contributed 32.3 cents per share out of 62.8 cents. Speaking of waterfalls, the company included this waterfall chart in its result:

Here’s a final fun fact: 83% of rand-denominated debt is hedged for interest rate risk, vs. 76.2% last year. This makes sense in the current environment.

One of the blemishes in the result is the exposure to Cell C and its office / warehouse campus, a large property that houses a telecoms company that has caused a lot of financial pain for people over the years. Speaking of Cell C, CEO Douglas Stevenson had to postpone the results announcement and roadshow because he has an upper respiratory tract infection.

I think most Cell C investors over the years would’ve happily swapped their exposure for such an infection.

Labat: the most confusing SENS headline

Labat has put together a joint venture to get more cannabis from Kenton-on-Sea to the global market

Labat’s share price closed 17.6% lower yesterday and I fear it was mostly due to extreme confusion around this SENS announcement:

Read it again. Slowly. And again…

The problem is that they tried to squeeze everything into the headline, like a tweet that should’ve been a thread. SENS needs to introduce threads.

What Labat is actually doing is setting up a distillate facility at the Sweet Waters facility in the Eastern Cape. One of the counterparties is Caliboyz Holdings, which sounds like a Chris Rock movie. Based in California, the company is involved in the design and manufacture of cannabis extraction and manufacturing facilities.

Most of the product will be exported.

Say cheeeeeeeese

Lancewood is the standout performer in Libstar’s results

Libstar’s revenue grew by 9.6% in the six months to June 2022 and EBITDA was only up by 4.6%, so margin deteriorated. Food producers are under a lot of pressure at the moment.

The Perishables category was the big winner, up 14.6% thanks mainly to a strong performance by Lancewood cheese. Normalised EBITDA in this category was up 27.8%.

In Groceries, revenue was up 2.2% and EBITDA fell by a nasty 17.7% because of supply chain challenges and increased logistics costs.

If you ever wondered about the impact of inventory pressures, supply chain issues and inflation on the balance sheet and the ability to generate cash, here’s a very good example of the pain it causes:

Libstar has been repositioning its portfolio towards value-added food products. The Household and Personal Care (HPC) division is performing better these days but is still being “evaluated” – a nice way of saying that Libstar would sell the division if someone would take it.

Toddler Ghost was raised on Umatie frozen baby foods. I can’t resist highlighting that Libstar has acquired that business. Based on our experience, it should be a winner!

Charl de Villiers will take over as CEO from the 1st of January, as co-founder Andries van Rensburg is stepping down after an incredible run at the helm of this group.

Things have slowed down at Mustek

Mustek remains well ahead of pre-pandemic levels, though

Although revenue at Mustek is up 11.5% for the year ended June, the gross profit margin fell from 14.9% to 14.3% and headline earnings per share (HEPS) is down 19.1%.

The dividend has followed suit, down 15.6% to 75 cents per share. For context, it was 90 cents in 2021, 26 cents in 2020 and 30 cents in 2019.

In other words, the year-on-year picture doesn’t look great but Mustek is still well ahead of pre-pandemic levels.

RFG Holdings is just peachy

RFG closed 8.4% higher on a bright red day for the JSE

Most investors were given a hiding by US inflation numbers. If you hold shares in RFG Holdings, you have something to smile about.

For the 11 months ended August, revenue is up 21.2%, driven by strong international demand for canned fruit and other fruit products. Last year’s peach crop in Greece failed, which makes a big difference in the market as Greece is the world’s largest exporter of canned peaches.

And you thought that economy was all about olive oil and high bond yields, didn’t you?

Input costs for those cans are causing pressure on margins, with the company finding it “challenging to fully recover cost increases” – an issue familiar to all food manufacturers.

The carbohydrate enthusiasts among you will be pleased to know that the pie category is recovering. Vegetable sales have been slower. Clearly, we are eating our problems.

Feedback is critical – let us know if you enjoyed the new Ghost Bites!