Bell Equipment reminds us what a cyclical business looks like (JSE: BEL)
That previous offer price of R53 per share just feels further and further away
I’ve said it many times and I’ll say it again: I think that Bell shareholders who blocked the take private deal were too greedy. The share price is now just below R38 and the offer price was R53. Sure, if the cycle was in Bell’s favour, then perhaps the price might get back there without an accompanying offer to boost it. Alas, the opposite is true.
For the year ended December 2024, Bell Equipment’s revenue fell by 13% and operating profit was down 37%. It just gets worse as you head further down the income statement, with HEPS down by 42%. At least there’s a dividend of 160 cents per share, representing a payout ratio of almost 35% of HEPS. Hardly a growth asset right now and not exactly a cash cow, either.
The issue is that Bell’s customer base is primarily in industries like mining. This is a hugely cyclical game where investment in capital goods (like the products that Bell sells) will only happen when the miners feel good about commodity prices. This wasn’t the case for the majority of commodities in 2024 (gold really was the exception), hence the impact on Bell’s numbers.
This takes us back to the issue I had with minority shareholders who blocked the deal: I felt that the offer was more than decent, particularly as it was being made based on earnings that were at a favourable point in the cycle. If Bell does ever get back to R53 per share, I suspect it will be a few years away. Time value of money, anyone?
Personally, I think much the same story of regret awaits the Barloworld shareholders who blocked that deal as well. Time will tell.
Netcare flags mid-single digit revenue growth (JSE: NTC)
The trend of declining maternity cases continues
The decline in the birth rate in developed countries and particularly among higher income families in emerging markets is becoming an increasingly concerning reality. This could lead to a demographic profile in years to come that is highly problematic, as we’ve seen in places like Japan and China. It’s not just an anecdotal thing of having fewer friends with kids than in prior generations – it’s an observable trend confirmed by numerous data points like declining maternity cases at Netcare.
The other trend that I always note is the level of demand for mental health services. Combined with the maternity trend, these are just some of the reasons why Netcare is experiencing a change in revenue mix where medical cases are growing faster than surgical cases. Interestingly, mental health demand may be coming off its peak though, with paid patient days 1.9% lower in this particular period in that area.
The underlying revenue mix may be changing over time, but at least the direction of travel is up. At group level, paid patient days are up 1.1% for the first half of the year. Revenue per paid patient day has increased roughly in line with inflation, which means that the group expects full-year revenue to be up by between 5% and 6%.
To help boost shareholder returns, the group has been busy with an extensive share buyback programme. This does indicate a degree of capital allocation discipline in the group, particularly as many hospital projects do struggle to generate sufficient returns on capital.
Interim results are due for release on 19 May.
Novus and the TRP just aren’t friends at the moment (JSE: NVS)
The mandatory offer to Mustek shareholders continues to be a headache
Novus hasn’t been on the right side of the Takeover Regulation Panel (TRP) recently. After raising their ire around concert party definitions in the offer made to Mustek shareholders, it looked as though things were sorted out. The Firm Intention Announcement (FIA) was released and the ball was rolling.
The latest development is that the TRP has now withdrawn its approval for the FIA, which means that Novus has to publish a new one within 20 business days. Presumably the clock will then be reset for the deal process to be followed. In the meantime, Novus will appeal against the ruling on an urgent basis.
This is a messy situation.
Orion Minerals really put the SENS systems to the test (JSE: ORN)
There was so much news that they needed four announcements in one day!
Orion Minerals certainly kept the market appraised of their plan to release major news on the underlying projects during March. In a flurry of announcements on Friday, they did exactly that.
A lot of it is very technical in nature, as is typical for a junior mining company. I’ll just focus on the high level stuff.
First up, the Definitive Feasibility Study (DFS) for the Prieska Copper Zinc Mine. The initial phase needs capex of R560 million and would achieve first production 13 months after the start of construction. This near-surface asset would run for 4.3 years. To get the life of mine up, there is a second phase that will be implemented roughly halfway through the initial phase. The total life of mine then increases to 13.2 years, with an expected post-tax internal rate of return (IRR) of 26%.
Then, we can deal with the DFS for the Flat Mines Project at Okiep Copper. This is less lucrative but still worthwhile, with a post-tax IRR of 19%. The expected capex bill is R1.6 billion. They have also planned a phased approach here, making it easier to raise funding along the way.
These DFS reports will allow the company to negotiate project funding, plan the implementation and negotiate offtake deals, among other workstreams.
Separately, the company announced a mineral resources update for the Flat Mines Area, informed by recent drilling activity. Junior mining is all about de-risking the project and getting closer to numbers that have higher confidence. This is what gets investors across the line.
And guess what? They did the same thing for Prieska, with a mineral resource update based on the recent data that was gathered in the DFS study.
Overall, the rubber now hits the road for Orion Minerals. This is where things hopefully get exciting for them, as they will need to raise capital for these projects. The market cap is R1.2 billion, so it’s likely that there will be significant dilution of shareholders along the way. This isn’t necessarily a problem, provided the valuation of Orion keeps improving over time and capital can be raised at higher share prices over time.
MultiChoice has pulled the rug on Phuthuma Nathi – and it’s disgusting (JSE: MCG)
The Canal+ transaction is starting to look like a matter of life and death
I’ve been writing and mentioning on radio interviews for a while now that MultiChoice looks to me like it was built for sale, not for sustainability. They threw everything at building out the African operations, hoping that South Africa would be able to fund it. This is as risky a strategy as you’ll find, appealing only to a buyer who wants major African exposure in one shot – much like Canal+.
The deal has gone from a nice-to-have to practically a life-or-death situation for MultiChoice. The recent results have been shocking at group level and the latest announcement shows that even Phuthuma Nathi shareholders aren’t safe. This is a disaster for B-BBEE investors, with the Phuthuma Nathi share price crashing by 56% on Friday.
The issue lies in MultiChoice South Africa, which is the level at which Phuthuma Nathi is invested. Sure, there’s a difficult environment being faced by the company, but MultiChoice has been messing around in Africa instead of getting the basics right at home. When there are endless complaints about the quality of the smart TV streaming app and nothing is done about it, you know that management is focusing on all the wrong stuff. If you add the African pressures to this, you now have a situation where MultiChoice has flagged that the dividend at MultiChoice South Africa is likely to be “significantly lower” going forwards.
So, in summary, lots of qualifying Black investors (including some major groups) trusted MultiChoice to run a decent business in South Africa that could keep paying dividends. Instead, they dropped the ball completely and now they need to preserve cash at SA level to help with the Rest of Africa. Worst of all, the Rest of Africa is a set of businesses that Phuthuma Nathi doesn’t even get any upside exposure to!
This is a disaster for many B-BBEE investment groups that saw Phuthuma Nathi as a reliable source of dividends and cash flow. Frankly, the board of MultiChoice should be looking for new jobs, but alas there is so little true corporate accountability in South Africa that it probably won’t happen.
But maybe, just maybe, there are enough angry B-BBEE investors out there with sufficient capital behind them to put pressure in the right places. I live in hope.
Safari Investments is exiting Namibia (JSE: SAR)
They found a Namibian buyer for their property assets
Safari Investments has decided to sell 100% of its interests in Safari Namibia for R290 million. The group wants to focus on rural and township shopping centres in South Africa instead, a rather interesting growth area. Unlocking capital from non-core assets obviously helps with this.
Safari Namibia is the owner and manager of the Platz am Meer Shopping Centre in Swakopmund. Having had the immense pleasure of visiting Swakopmund once before, I do wish I could go see the deal for myself! It’s a beautiful little place.
Travel memories aside, the deal also comes with an “agterskot” (a potential future payment) if Safari Namibia achieves a targeted net operating income yield during the 12 months after the disposal. This could add between R1 million and R10 million to the price for the deal.
The fair value of the property is R303 million, so even if the agterskot is triggered, they would have sold this at a price below fair value. Still, I agree that exposure to retail properties in lower income areas in South Africa is a better bet for the long term than having a shopping centre in Swakopmund.
Telkom’s earnings are trending higher, but HEPS is the right metric to use – as usual (JSE: TKG)
This is a great example of how badly EPS can be distorted
Telkom has released a trading statement dealing with the year ended March 2025. The good news for investors continues to flow at the group, with HEPS up by at least 10%. The telecoms sector has been enjoying strong market support lately and Telkom is no different, with the share price up more than 40% over six months.
Regular readers will be aware that trading statements are triggered by an earnings move of at least 20%, so why did this get released for a HEPS move of 10%? The answer lies in the Earnings Per Share or EPS line, which is impacted by the profit made on the disposal of Swiftnet. Including that profit means there’s a 300% increase in EPS!
Clearly, that’s not an indication of recurring earnings growth, hence why HEPS is the better metric to use.
Nibbles:
- Director dealings:
- An executive at Investec (JSE: INL | JSE: INP) sold shares worth R4.3 million.
- A director of the main operating subsidiary at Mpact (JSE: MPT) sold shares worth R1.49 million.
- A couple of directors at Cilo Cybin (JSE: CCC) bought shares worth R17k.
- There’s a changing of the guard at Capitec (JSE: CPI). Gerrie Fourie is retiring as CEO, having been part of the executive management team for the past 25 years. He’s a founding member of the bank and can certainly look back on a career that genuinely changed the banking landscape in South Africa. His successor is Graham Lee, who has been on the group executive team since 2022. He joined Capitec in 2003, so this is a great example of a succession plan in action.
- Rex Trueform (JSE: RTO) released results for the six months to December 2024. There’s practically no liquidity in this stock, so it just gets a passing mention. Although revenue fell by 4.5%, gross profit margin was up and operating profit increased by 9.6%. Despite this, HEPS fell by 3%. African and Overseas Enterprises (JSE: AOO) is a related entity that also released results, reflecting HEPS up by 0.5%.
- AH-Vest (JSE: AHL) released results for the six months ended December. This is a tiny company, hence it only gets a mention in the Nibbles. Revenue fell 12.8% and HEPS crashed by an ugly 93%, so the company is barely profitable. It made a profit of R178k off revenue of R100.6 million. I’ve seen thin margins before, but this quite possibly takes the cake.
- The chairperson of Labat Africa (JSE: LAB) has resigned with immediate effect, which is odd after 12 years on the board. Separately, a new director with IT experience has been appointed to the board, so this points to the new direction being taken by the company. N Bodirwa has been appointed as interim chairperson.
- Europa Metals (JSE: EUZ) released results for the six months to December 2024. This was the period in which the Toral Project was disposed of to Denarius Metals Corp in exchange for shares. They also announced the planned Viridian Metals deal in this period, which they subsequently decided not to pursue. They will need to figure out the way forward, as the assets on the balance sheet almost entirely consist of the stake in Denarius.
- Cilo Cybin (JSE: CCC) updated the market on the process for the proposed acquisition of Cilo Cybin Pharmaceutical. Due to the timing of the audit, the intention is to have the latest pro forma financial information in the circular. To achieve this, the company is approaching the JSE for a dispensation for a further extension of the circular distribution date.
- Salungano Group (JSE: SLG) is dealing with a change in CFO during the finalisation of results that are now terribly late. They need to get the March 2024 annuals out, as well as the September 2024 interims. With another delay announced on Friday and an expectation of only releasing these reports by June 2025, the March 2025 annuals might be late by then as well!
- Stefanutti Stocks (JSE: SSK) announced that the disposal of SS-Construções (Moçambique) Limitada is still suffering delays. The fulfilment date for the conditions to the deal has been extended to 30 April 2025.
- Conduit Capital (JSE: CND) released its quarterly progress report. The company has to do this as it is suspended from trading. Aside from the provisional liquidation issues, the more important updates are: (1) the sale of CRIH and CLL to TMM, which was once again blocked by the Prudential Authority, has had its fulfilment date extended to 16 May to allow for time to engage with the regulator, and (2) the company is taking steps to enforce the arbitration award against Trustco Properties.
- London Finance & Investment Group (JSE: LNF) had no problem in getting the approval from shareholders to delist and return capital to shareholders, with an almost unanimous vote in favour of the plan.
- Randgold & Exploration Company (JSE: RNG) released results for the year ended December 2024. This is little more than a cash shell these days that is busy pursuing legal claims. There is no revenue other than finance income. The operating loss for the year ended December 2024 improved by 44% to a loss of R17.2 million.
