Boxer’s pre-listing statement has been released by Pick n Pay (JSE: PIK)
22 years of turnover growth have brought Boxer to this point
Boxer is without a doubt in the jewel in Pick n Pay’s broken crown. In the latest interim period, it grew turnover 12.0% or 7.7% is on a like-for-like basis. The two-year store roll-out compound annual growth rate (CAGR) is 14%, so they are expanding at pace. It’s the right time to get the market excited about the story and willing to pay up for it, injecting some desperately needed capital into the Pick n Pay balance sheet.
The first few weeks of the new financial period have seen 5.2% like-for-like growth at Boxer, admittedly against a very strong base.
Boxer appears to have a huge growth runway ahead of it, with 4.2% market share of the formal grocery market. You do need to be careful though, as the group makes no effort to win market share in higher income brackets. They have 68% of the discount grocery retail market, which is substantial. Thankfully, as more South Africans move from informal retail into formal retail, their market is growing. Based on expansion into areas where there is currently no Boxer Superstore, they reckon they have the potential to triple current revenue levels over the long term.
Despite the obvious expansion potential, they intend to pay 40% of headline earnings as a dividend.
The offer price range for the listing is R42 to R54 per share. If they get a price at the mid-point, there will be 477 million shares in issue, suggesting a market cap of R22.9 billion. Boxer generated headline earnings of R1.4 billion for the year ended February 2024. That’s an outdated number of course, but it implies a mid-teens Price/Earnings multiple for the group at the mid-point.
I suspect there will be a bit of a feeding frenzy over these shares, with institutions getting in at a juicy price and the share price popping to over 20x P/E when it starts trading. Let’s wait and see.
Harmony’s results look strong, but production was flat (JSE: HAR)
The gold price is doing the heavy lifting here
The gold sector is having a fabulous time at the moment. In Harmony’s latest quarterly results, they show a 21% increase in the average gold price received and a 23% increase in gold revenue. This more than makes up for a 14% increase in all-in sustaining costs, driving operating cash flow 60% higher! Lovely.
Production was only flat year-on-year though, so that’s the obvious area where things could’ve been better. The South Africa underground high-grade operations saw production up 15% thanks to Mponeng. The South African underground operations saw production dip 10%, so that’s where the difficulties were experienced. Production was steady at the South African surface operations and down 11% in the international business.
Although uranium is still a small part of the overall story, it’s a useful by-product of the gold extraction process at Moab Khotsong. Uranium production decreased by 10%, but the price was up 39%. Uranium revenue was R199 million for the quarter.
Mines constantly have to invest to keep their operations ticking over. Capex was up 17% in this period, which looks fine in the context of such strong operating cash growth.
Life gets a huge boost from LMI (JSE: LHC)
The hospital business is delivering the usual single-digit growth
Life Healthcare has released a further trading statement dealing with the year ended September. There’s a jump in HEPS from continuing operations of between 55.9% and 60.9%, which certainly isn’t the stuff we are used to seeing from a hospital group.
As expected, a further read shows that there’s a major once-off boost here: income of $36 million from the sub-licensing arrangement of one of Life Molecular Imaging’s (LMI) early-stage novel radiotherapeutic and radio diagnostic products. That’s legitimate and exciting income, but certainly not an indication of the kind of growth rates that can be maintained.
The dose of realism is that paid patient days grew 1.6% in the acute hospital business and fell 2.6% in the complementary business. Overall volume growth was thus 1.2%, with a boost in revenue per paid patient day taking the southern Africa revenue up by between 7.5% and 7.9%. That’s pretty good actually, although dwarfed by LMI with revenue growth of 180%.
Another important point is that the repayment of international debt (thanks to the sale of Alliance Medical Group) brought interest costs down by 66%. This is why HEPS from continuing and discontinued operations looks even better, up by between 69.4% and 77.3%.
Margins up at Omnia, but not much HEPS excitement (JSE: OMN)
And the issue is on the tax line, not the finance costs line
When you see a company with decent operating profit growth but a disappointing HEPS outcome, it’s usually because finance costs have gone up and the bankers are getting the uptick in performance. Not so at Omnia, where a dispute with the Zimbabwean Revenue Authority means that an operating profit increase of 17% has translated into HEPS growth of just 2%!
This isn’t Omnia’s first tax rodeo, either. They are still sorting out a dispute with SARS going back to the 2014 to 2016 tax years.
Tax weirdness aside, investors can at least feel good about operating margins expanding from 6.5% to 7.3%. Group working capital was down slightly despite the growth in revenue, so they are also managing the business efficiently from a cash perspective.
The Agriculture segment saw revenue dip by 4%, but operating profit increase by 27% thanks to commodity prices and operational improvements over the period. In Mining, revenue was up 15% and operating profit 18%, so that’s a good story from top to bottom. Chemicals, sadly, is a completely different situation – although revenue was up 6%, there was an operating loss of R23 million after an operating profit of R5 million in the prior period. I don’t understand enough about the chemicals market, but it has severely hurt Sasol and the same seems to be happening at Omnia.
The share price is up just 2% year-to-date, reflecting the subdued movement in HEPS.
Raubex posts a banging set of numbers (JSE: RBX)
They are the clear winners in the construction sector
Raubex is a wonderful example of the power of stock picking. At a time when the narrative in most of the construction sector is subdued, this company has delivered spectacular returns in the past year. The best part is that the earnings are backing up the share price growth, so this isn’t just a case of improved sentiment.
For the six months to August, Raubex grew revenue by 29.7% and operating profit by 34.7%. Not only is that excellent growth, but also an improvement in margins. It gets better as you move down the income statement, with HEPS up 49.8%.
The cash story may well be the biggest highlight of all, with cash from operations up 111.5%! This means they had no problem increasing the interim dividend by 49%, in line with HEPS.
If there’s anything to put even the tiniest blemish on these numbers, it’s that the order book reduced from R25.55 billion to R24.50 billion. Management sounds bullish on increases to the order book going forward, with a robust pipeline particularly in South Africa.
If we look deeper at the segmental numbers, things predictably get a lot more volatile. For examples, Materials Handing and Mining saw operating profit margin drop sharply from 10.9% to 8.4%. Revenue was up 39.1% in that division, so they still ended up in the green. Construction Materials grew revenue by 18% and saw operating profit nearly double, with operating profit margin up from 5.1% to 8.5%. Roads and Earthworks also had a great story to tell, with revenue up 31.2% and operating profit margin up from 5.6% to 7.4%, leading to an increase in operating profit of 74%. The Infrastructure business grew revenue by 26.9%, but margin decreased from 7.9% to 7.3% and so operating profit was “only” 15.9% higher. Finally, the International division saw strong results across Rest of Africa (operating profit up 51.4%) and Australia (operating profit up 13.9%).
Overall, it’s hard to fault this set of numbers.
A lower dividend at Stor-Age (JSE: SSS)
At least the net asset value per share is up
If memory serves, Stor-Age warned previously that the dividend payout ratio would be decreasing. This allows the company to retain some of its earnings to fund further growth, a major challenge faced by REITs who are effectively cash conduits for shareholders. Most REITs don’t pay out 100% of their distributable income per share as a dividend, so Stor-Age is simply aligning with the rest of the sector here.
Still, it means that the interim dividend is down 6.8% despite distributable income per share being up 3.5%. The payout ratio is now 90%.
Dividend aside, the underlying metrics look strong. Rental income increased by 10.8% in South Africa and 6.8% in the UK for this interim period, whilst net property operating income was up 12.0% in South Africa and 87.4% in the UK.
The net investment property value increased by 5.4%. The balance sheet is healthy, with a loan-to-value of 31.3%. All this has contributed to 8.3% growth in the net asset value per share.
Still, if you combine the net asset value per share growth with the decrease in the dividend, the total return to shareholders is minimal. Despite this, the share price is up 27% in the past 12 months. Keep an eye on this one, which has been a market darling and is thus ripe for a wobbly.
The net asset value per share is R16.8554 and the share price closed at 1.7% higher on the day of results at R15.21.
Sibanye-Stillwater locks in a gold wage agreement (JSE: SSW)
This is of critical importance with such favourable gold prices
With the ongoing pain in the PGM side of the business, the gold operations are the best part of Sibanye-Stillwater. It’s therefore beyond critical that there are no labour disruptions, as that would truly be a disaster for the group.
It’s good news that Sibanye has concluded wage negotiations in the SA gold operations, effective July 2024 to June 2025. Although this only gives certainty until the middle of next year, it’s a step in the right direction. The wage increase is 5.5%, so that feels fair for all involved.
Vodacom reminds me once more why I don’t like the telecoms sector (JSE: VOD)
The interim dividend is down 6.6%
Vodacom’s revenue increased by just 1% for the six months to September 2024, with substantial forex headwinds as a problem. Much like sector peer MTN, Vodacom has gone looking for growth in Africa and has found consistently depreciating currencies.
Although they try hard to push the constant currency growth story, also known as the “pretend we aren’t in these risky markets and just imagine the possibilities” approach, we know better from MTN experience. You can’t ignore these risks, hence I completely ignore the normalised growth.
HEPS fell by 19.4% and the dividend is down 6.6%, so they’ve increased the payout ratio in an effort to stem the bleeding for shareholders. Operating cash flow fell 18.3% and free cash flow came in at negative R1 billion thanks to the extent of capital expenditure.
Will things work out well with the business in Egypt? It grew by 44.1% in local currency, which is encouraging. It just doesn’t help if these currencies keep falling off a cliff.
This is a really tough sector, with minimal growth opportunities in South Africa (Vodacom didn’t even get approval for its fibre deal with Remgro) and many risks beyond our borders.
Some positive momentum at Woolworths (JSE: WHL)
Australia is still a mess, but the rest is looking better
Woolworths has released a trading update for the 18 weeks ended 3 November. At group level, an increase in turnover of 6.5% really isn’t bad, especially when you start digging deeper.
Woolworths Food managed growth of 9.6% excluding Absolute Pets. With that acquisition included, sales growth was 12.1%, but that’s not a very useful metric. Instead, it’s better to consider price inflation for the period of 6.2%, with trading space (excluding Absolute Pets) up 2% as the group invested in expansion once more. Online sales were up 36.9%, driven by Woolies Dash which grew 54.4%.
Food isn’t where the problems have been recently. The battered and bruised Fashion Beauty and Home (FBH) business seems to be improving, with sales up 3.5% overall. This does however include the winter clearance sale, so be careful of extrapolating this for the entire interim period. Still, it’s a green result despite price movement of just 1.9%, so volumes were positive. Beauty was a highlight, up 20.6% as Woolworths invests in that category. Online sales increased by 36.5%.
The Woolworths Financial Services book was down 3.5% year-on-year and the annualised impairment rate was better at 5.9% vs. 7.5% in the prior period.
This brings us neatly to the end of the good news. Australia remains a huge problem, with Country Road Group suffering a sales decline of 8.8% overall and 13.8% on a comparable store basis. Trading space decreased by 1.6%. They’ve flagged that operating margins have also gone the wrong way, so brace yourself for ugly numbers from that part of the world.
Nibbles:
- TeleMasters (JSE: TLM) renewed its cautionary announcement regarding a potential offer from B-BBEE investors. The potential acquirer is in the process of securing funding and nothing is guaranteed yet, so for now they are still under cautionary.
- Acsion (JSE: ACS) released a related party announcement that is a good reminder of just how odd the place is. Firstly, one of their subsidiaries is Hey Joe, a restaurant and brewery in Franschhoek – not the kind of asset you’ll usually find in a listed company. Then, said brewing company has appointed K Anastasi Projects (which happens to be owned by the CEO of Acsion) to construct 69 hotel units on the property. The contract is worth R87.5 million and is thus a small related party transaction under JSE rules. This requires a fairness opinion from an independent expert. Merchantec Capital has opined that the contract is fair, so no further approvals are necessary for the contract.
- Trustco (JSE: TTO) has announced a general progress update on its corporate transactions. There are a bunch of underlying transactions that are being dealt with in one circular, the drafting of which will start when they publish 2024 financial statements. The Legal Shield deal circular is in progress at the JSE and is going in for its third submission soon (circulars go through several reviews). The resources transaction is also in process at the JSE, with the Preliminary Economic Assessment with the readers panel for review. There’s a lot going on at Trustco and they are doing a decent job here of keeping shareholders in the loop.
