The offer to Barloworld shareholders is as good as its going to get (JSE: BAW)
Just how far will the fight with Silchester go?
UK-based Silchester International Investors holds around 17.7% of the shares in Barloworld and they are angry about the proposed take-private of the company. This has been playing out in various media headlines rather than on SENS, with Silchester making it clear that not only will they vote against the proposed deal, but they will also look to take further action in pursuing board changes in response to what they perceive as governance failures.
We will have to see what happens in terms of any shareholder activism here regarding the board. In the meantime, we now know that the consortium making the offer will not be increasing the price on the table. R120 per share is as high as it gets, despite Silchester indicating that they would consider at least R130 per share.
In percentage terms, that’s only 7.7% off what Silchester has indicated as a price that they would accept. Will they blink and change their approach on the deal, with a surprise “yes” vote in the pipeline? Barloworld has had mixed fortunes, with the share price trading below R100 for literally all of 2024 – and often well below that level.
Investors in Bell Equipment were also stubborn about the offer price on that proposed deal. It was priced at R53 per share and was blocked by activist shareholders. Bell is now trading at R39 per share.
I look forward to seeing how this plays out!
There is very little growth at British American Tobacco (JSE: BTI)
I still don’t see the appeal here
British American Tobacco is trading on a trailing dividend yield of roughly 7%. Once you adjust for the tax difference between company dividends and distributions from REITs, this puts it roughly in line with a number of REITs in terms of yield.
But here’s the thing: property isn’t a sunset industry. I also don’t see regular headlines about countries wanting to ban properties from existing, but the same certainly can’t be said for vapes and related products. Even the “Smokeless World” concepts that the PR consultants get paid a fortune to come up with aren’t exactly flying off the shelves. Reinet (JSE: RNI) recently sold its entire stake in British American Tobacco, so there’s another strong indication that there isn’t much growth here.
Over three years, the share price is up 2%. Not 2% per year – 2% in total. You get the dividend and not much else here, aside from some major swings to keep traders interested (like a 24% rally in the past 12 months).
Why has this thing run out of puff? Well, even if they perform in line with mid-term guidance, that’s only revenue growth of 3% to 5% and adjusted profit from operations growth of 4% to 6%. I’ll ask again – why not just buy the REITs? I hear the argument that smoking is more defensive (after all, it helps when people are addicted), but that only matters for short terms in any kind of long-term investment horizon.
Also, it’s not as though British American Tobacco hits that guidance all the time. For the year ended December 2024, organic revenue at constant rates was up 1.3% and adjusted organic profit from operations increased 1.4%. The New Categories business is finally making a profit at least, now contributing 17.5% of group revenue.
One of the major issues in 2024 even on an adjusted basis was the US market and a 10.1% decrease in volumes. Without adjustments, group revenue fell by 5.2% thanks to the sale of the businesses in Russia and Belarus.
Looking ahead to 2025, I’m very pleased to see that global tobacco industry volumes will be down 2%. The world is getting healthier. This means that they expect revenue growth of just 1% and adjusted profit from operations growth of 1.5% to 2.5%, so that’s a long way off the mid-term guidance.
The share price fell 8.3% off the back of these numbers. In case it isn’t super obvious, I have no position here.
Caxton’s focus on margins has kept profits on the right path (JSE: CAT)
Revenue remains a concern though
Caxton and CTP Publishers and Printers (which everyone just calls Caxton) has released a trading statement for the six months to December 2024. Although revenues declined marginally (we don’t have the exact percentage yet), HEPS actually moved higher by between 9.3% and 15.2%.
Caxton operates in certain verticals that feel like they could be sunset industries, particularly the community newspapers. They are working on running those businesses as efficiently as possible, while venturing into other areas that have better long-term prospects. It therefore makes sense to see a combination of weaker revenue and better profitability, as the shape of the group is changing over time.
We will have to wait for the release of results on 4th March for full details.
iOCO (formerly EOH) rallied on the release of a trading statement (JSE: IOC)
These numbers provide a clearer view of what is now in the group
After a volatile turnaround period that included major changes to the group and its capital structure, executives at iOCO must be feeling good about being able to release a simple set of numbers into the market. Gone is the massive headline loss per share in the comparable period. Instead, HEPS for the six months to January 2025 is expected to be between 19 cents and 21 cents.
The share price closed 10.6% higher at R2.82. If we just annualise this interim performance (a dangerous thing to do but sometimes a helpful rule of thumb), the forward P/E is roughly 7x. That’s modest if there are genuine growth prospects for the group. I must warn you – that’s a big if.
Marius de La Rey has resigned as interim CEO, so he won’t be delivering that growth. The company is taking the route of joint CEOs, a structure that I hate. Two existing non-executive directors will take that role, namely Rhys Summerton and Dennis Venter. Summerton will be focused on capital allocation decisions and group strategy, while Venter will work on revenue generation initiatives.
Most companies just split this into a CEO and business development head, but that would require choosing one of these execs to actually be ultimately responsible for performance going forward. The choice of the joint-CEO route is worrying as shared accountability can quickly become no accountability.
In a letter from the new joint CEOs, they talk about creating a culture of “radical autonomy” within the business units. No, the irony of a group giving divisional executives more power while failing to choose one group CEO isn’t lost on me.
Italtile’s earnings are in the green (JSE: ITE)
Given all the worries around the manufacturing segment, this is better than I expected
Italtile’s management team worked hard to stop the market from having high expectations about the company’s earnings. There were multiple warnings about overcapacity in the local tile manufacturing industry, which would naturally put pressure on prices and the ability to absorb overheads. Also, we haven’t exactly seen a rush of consumers into durable goods yet, despite the GNU and a dip in interest rates.
Against this backdrop, I expected a flat or even negative earnings trajectory at Italtile. Instead, the company managed to grow HEPS by between 2% and 6.7% for the six months to December 2024. The market response was muted, with the price closing flat for the day. The year-to-date move is a nasty 15.6% drop.
Over the past 12 months though, my preference for Cashbuild in this sector has proven to be the right decision:
Sibanye Stillwater bids farewell to Neal Froneman (JSE: SSW)
Froneman is retiring from the company that he is synonymous with
Here’s big news from the PGM (and I suppose gold) sector: Neal Froneman has decided to retire as CEO of Sibanye-Stillwater with effect from 30 September 2025. Of course, you have to wonder if this means that his outlook on the PGM sector is that any improvement will take too long to come to fruition, so he may as well call it a day. The recent narrative in the sector hasn’t exactly been positive and Sibanye has had many troubles to deal with, so perhaps he’s just gatvol. The official line, of course, is that he wants to spend more time with his family and on his interests. Fair enough. We just know from experience that one of his interests is to get paid an eyewatering amount of money at the top of the cycle.
Whatever the reason, it means that Richard Stewart (currently Chief Regional Officer of the Southern Africa region) will be appointed CEO-designate with effect from 1 March 2025. He’s been with the group since 2014, so that’s a long innings to get to this point. He has his work cut out for him with a share price that is down 54% over five years.
South32: an operating leverage exhibition (JSE: S32)
When revenue jumps, the percentage change in profit can be epic
Mining groups have incredibly high fixed costs. This means that in the bad times, they really suffer. In the good times, they make a fortune. The best way to see and understand this is to look at the impact of an incremental increase in revenue.
For the six months to December 2024, South32’s revenue jumped by 25%. In dollars, this means an additional $616 million in revenue came into the group. Now, how much of that “dropped to the bottom line” i.e. to what extent did profits increase?
Seeing a 579% increase in profit isn’t meaningful, as there was a low profit base in the comparable period. It’s more helpful to see that profit went up by $307 million. This means that essentially half of the additional revenue in the group popped out as profit after tax. How’s that for a profit margin?
How did they do it? Well, in the Alumina business, production fell 2% but a 53% increase in average realised prices meant that profits shot through the roof. Aluminium saw a 16% increase in prices, with a 5% increase in production helping to turbocharge that result as well.
Moving on to copper, production increased by 21% and prices were higher as well, so profits shot up by 84%. Even nickel, a metal with tough dynamics at the moment, saw a sharp increase in profit thanks to cost efficiencies and other projects. South African Manganese is a small contributor, but still added to the positive vibes with profit doubling for the period.
It can’t all be rainbows and unicorns, of course. Zinc saw a dip in profits as production fell by 17%. Australia Manganese had Tropical Cyclone Megan to deal with, so they made losses there as well.
Overall, this was a strong result that was accompanied by a drop in capital expenditure, which means free cash flow was boosted. The sale of Illawarra Metallurgical Coal dealt with almost all of the debt on the balance sheet as well, so the group is in incredible shape.
The share price closed 6% higher in response.
Nibbles:
- Director dealings:
- The CEO of Vodacom (JSE: VOD) has sold shares worth R20 million. This comes after a strong rally in the share, so I would treat that as a signal that the share price is overcooked.
- The CEO of British American Tobacco (JSE: BTI) reinvested dividend income to the value of £6.7k in shares.
- Labat Africa (JSE: LAB) closed 16.7% higher after announced that HEPS for the six months to November 2024 will be 98.72% higher year-on-year. That’s a huge jump of course, but seeing percentage moves like this off a depressed earnings base isn’t that uncommon. The group is going through a major change at the moment.
- Stefanutti Stocks (JSE: SSK) has moved its listing to the General Segment of the Main Board. It’s been a couple of weeks since we saw one of these announcements, with the company joining a sizable list of other small- and mid-caps that have made the move in search of simpler disclosure requirements.
