Bidvest to sell Bidvest Bank and some other financial services businesses (JSE: BVT)
This is part of a substantial restructuring of the financial services division
The Bidvest management team understands how to allocate capital. They also know which setors they are particularly good at. The reduction of exposure to the financial services sector simplifies the group for investors and unlocks substantial capital.
The major disposal on the table is 100% of Bidvest Bank Holdings to Access Bank, a substantial player with operations in 23 countries. Access Bank acquired Grobank in 2021 as its market entry in South Africa and is now taking a major further step with this R2.8 billion acquisition of Bidvest Bank. For context, Bidvest Bank’s operating income was R377 million in the latest financial year.
Bidvest will apply these proceeds towards the reduction of debt, dropping its net debt / EBITDA from 1.7x to 1.6x.
In other deals, Bidvest has agreed to sell 100% of FinGlobal to Momentum Group and is in the process of assessing binding offers from life insurers for Bidvest Life. No numbers have been given for either of those deals.
Finally, some positive news for Gemfields (JSE: GML)
With the share price down 45% year-to-date, they need it
Gemfields has been having a tough time of it lately. The market for precious stones has been under pressure, especially for emeralds where a large producer seems to be happy to sell at much lower prices than Gemfields would like, causing a downward shift in the entire market. This comes at a time when Gemfields has a substantial capex programme underway and they cannot afford to have major dislocations or negative surprises in the market for these stones.
At least the results of a mixed-quality ruby auction are promising. They sold 95% of the lots offered for sale and achieved record average prices per carat for a mixed-quality ruby auction. I would be careful with putting too much faith in the “record pricing” narrative, as mixed-quality auctions mean that the mix itself can have an impact on pricing.
The other problem for the share price is the volatile situation in Mozambique. The rubies come from Montepuez Ruby Mining Limitada, which is 75% owned by Gemfields and 25% by Mozambican partner Mwiriti Limited. I’m speculating here, but I suspect that the local ownership is the reason why mining operations have been unaffected by the civil unrest in the aftermath of the election.
It can’t all be good news, of course. Mining in Africa is never dull, with the announcement also noting that Kagem Mining (the Zambian emeralds business) has had a legal claim filed against it by a competitor in Zambia. This relates to alleged unlawful occupation of a certain area. This claim follows a separate claim filed by Kagem against the same counterparty just one month earlier, so there’s clearly no love lost there. It’s probably little more than a painful distraction, but it’s still not helpful right now.
Will KAP finally enjoy a meaningful upswing? (JSE: KAP)
There are promising signs in the pre-close update
KAP has given an update for the five months to November 2024, which is essentially a pre-close update for the interim period. Although one would expect the benefits of improved sentiment in South Africa to have flowed through to the business, it doesn’t sound like that is happening yet.
Still, revenue was up for the period, so KAP’s sobering view on trading conditions should be read in that context. Whether or not profitability will be up is a different matter, as there have been various drags on performance. These include ramp-up costs at PG Bison’s new MDF line, higher finance costs for the group as a whole and lower vehicle production at local OEMs, impacting the Feltex business where operating profit has “notably declined” – ouch.
Safripol is the really important division to watch, with KAP suggesting an increase in revenue and operating profit. They talk about improved volumes based on production constraints in the prior period at Sasolburg that seem to have abated, so that’s an encouraging read-through for Sasol. Polymer raw material margins have been stable, albeit not exciting based on global industry overcapacity.
Over at Unitrans, operating profit moved higher despite a smaller fleet size, so that tells a great story for efficiencies. At Restonic, revenue and operating profit increased as they won market share in the bedding market. At Optix, they achieved higher revenue and lower operating profit, which is typical of a start-up in scale phase.
It sounds like the second half of the year might be better than the first half, especially based on the increased capacity at PG Bison’s MDF line. The restructuring activities at Unitrans are paying off and even Safripol sounds like it might be getting better. They also expect net debt to decrease from the second half of the year, which will be a useful underpin to earnings along with hopefully decreasing interest rates.
Interim results are due on 27 February. It doesn’t sound like they will be strong, but perhaps things will look better for full-year earnings.
Pan African Resources gives the market strong guidance (JSE: PAN)
Will gold prices stay high enough to make this really lucrative?
Mining houses can’t do anything to control the price of the commodity that they produce. All they can do is focus on maximising production and minimising costs, giving themselves the best possible chance to get lucky.
It looks as though Pan African Resources is doing a solid job of that, with strong guidance for gold production. Thanks to recent investment in production, they expect the six months to December 2024 (1H’25) to be in line with 2H’24. They expect full year 2025 production to be 16% higher year-on-year. Looking ahead to FY26, the expectation is a further jump of 12.7% at the midpoint.
This excludes the acquisition of Tennant Consolidated Mining Group (TCMG), so that shows the value of the investment made by Pan African in its other operations, especially the Mogale Tailings Retreatment operation. It also sent a strong message to the market that Pan African came in below budget and ahead of schedule at Mogale, the holy grail for any construction project.
By February 2025, Pan African expects its gold hedges to have unwound, so they will be fully exposed to the spot price. That’s good news based on current prices. If the prices continue, debt at Pan African will be a thing of the past in the next 12 to 18 months.
It’s not all smooth sailing of course, especially in mining. The Evander Mining production ramp-up has delivered some headaches along the way, although those issues have now been resolved.
The share price is up a whopping 110% year-to-date, which is what happens when production comes on stream at the same time as strong gold prices.
Transaction Capital needs new brooms to sweep clean at Nutun (JSE: TCP)
Even the core business had a disappointing year
Transaction Capital has released results for the year ended September. It was an historic year for the group, albeit not for happy reasons. They separately listed WeBuyCars and raised R1 billion in the process. They had to sort out holding company net debt and contingent liabilities, while making extensive reductions to head office costs. Various non-core subsidiaries of Nutun were also on the chopping block, along with the sale of a controlling interest in Mobalyz to a management consortium.
It’s like taking a block of mouldy cheese and cutting away as much as possible to see if there’s any good stuff left. The latest results suggest that even Nutun wasn’t safe from the mould.
Core continuing headline earnings for Nutun fell by a nasty 85% to R54 million. The South African business suffered from group funding constraints for new book acquisitions, along with problematic payment behaviour by consumers that made the books less lucrative. Interest costs also moved sharply higher. At Nutun International, it sounds like the issues were more once-off in nature, although time will tell.
If you include the legacy head office costs, then Transaction Capital’s core headline loss from continuing operations was R92 million. Remember, this doesn’t even include the problems at Mobalyz!
Clearly, there’s a lot of work to be done here. Much of the focus has been on the balance sheet, which will benefit from the disposal of parts of Nutun as well as new commitments from main funders. There’s new management in place as well, with a strategy to focus on BPO services. They are now pushing the BPO narrative hard, which means they want to be seen as more than just a debt collection business.
Importantly, there are also further reductions in head office costs, such that it will now be collapsed into Nutun for reporting going forward. This is because there’s actually nothing else left in Transaction Capital that they are actively managing, so there’s no point in a reporting structure that makes them look like capital allocators. They are now operators of a single division, with other investments that will hopefully produce long-term benefits.
Nutun is targeting a medium-to-long term return on equity of between 20% and 25%. Let’s see what happens.
Nibbles:
- Director dealings:
- Carl Neethling has bought shares in Ascendis (JSE: ASC) worth R12.3 million in an off-market transactions. Also in off-market transactions, Calibre Investment Holdings bought a net R37.6 million worth of shares. Further important disclosure is that International Finance Corporation no longer holds any shares in the company, while Calibre now has a 27.43% stake.
- A director of Motus (JSE: MTH) has sold shares worth R2.5 million.
- Two directors of a major subsidiary of RFG Holdings (JSE: RFG) received share awards and sold the entire lot worth R480k.
- Conduit Capital (JSE: CND) has released its quarterly update, something that companies that are suspended from trading are forced to do. One source of upside is the R50 million arbitration award in favour of Conduit Capital against Trustco Properties. They are taking steps to enforce the award. As for the R55 million sale of CRIH and CLL to TMM, the parties are hoping for a positive response from the Prudential Authority after a successful application to the Financial Services Tribunal to overturn the initial decision. The sale of property agency Century 21 for R7.3 million is only contingent upon the approval by the international master franchise agency, following which cash should flow. Finally, they have a lot of catching up to do on financial reporting – all the way back to the six months to December 2022!
- Murray & Roberts (JSE: MUR) has withdrawn its cautionary announcement. Before you get excited, this is purely a technicality. The shares are suspended from trading due to business rescue proceedings, so you don’t need to trade with caution if you aren’t able to trade anyway!
- Shareholders of Visual Holdings (JSE: VIS) voted strongly in favour of the issue of shares to related parties to improve the group balance sheet.
- Combined Motor Holdings (JSE: CMH) is moving its listing to the General Segment of the Main Board of the JSE, following in the footsteps of several other smaller listed groups.
