Positive momentum continues at Cashbuild (JSE: CSB)

I remain happy with my long position here

I take an approach of selective exposure on the JSE. Cashbuild is one such example, as I think this is an appealing way to play the South African recovery story. They don’t have the manufacturing capacity issues that Italtile has, hence they are my choice in the sector. So far, so good.

The latest quarterly update is also encouraging, with revenue in the second quarter up 6%. The existing stores were responsible for 5% growth and new stores contributed 1%. For the six months, this means group growth was 5%. It’s no rocketship of course, but my expectation is for more of a steady grind.

With volumes up 8% for the second quarter, it seems as though there may have been deflationary effects over the quarter. Inflation was just 1.5% at the end of December 2024, but that sounds like a snapshot view rather than the percentage that applied over the period.

Even P&L Hardware is posting consistently positive results these days and Cashbuild Common Monetary Areas also swung positive, so the momentum is building.

It’s also good to see discipline in the footprint strategy, with 3 new stores and 6 closures of underperforming stores. They refurbished 11 stores. Growth for the sake of growth isn’t helpful to shareholders. It’s more important to optimise the business.

Are things ever going to improve at Sasol? (JSE: SOL)

The latest update has done no favours for the share price

Sasol dished out a tough start to the day for its investors, with an early morning update that was filled with disappointing news. The share price reacted sharply, down over 4% in early trade and eventually closing 4.7% lower.

The coal quality at Secunda Operations (SO) remains a problem, with production for the six months down 5% year-on-year. This has led to a deterioration in production guidance for the facility.

Despite a strong quarter at Natref, 2025 got off to a terrible start with a fire at the refinery on 4 January. Supporting piping and infrastructure was damaged, with repairs anticipated to be completed before the end of February. This means that production for FY25 is expected to be 5% – 10% lower than FY24, a major downgrade vs. previous guidance of growth of 0% – 10%. If Sasol has insurance for the lost profits, they are keeping very quiet about it – I didn’t see any mention of insurance in the report.

These issues set the scene for a report that also includes uninspiring numbers in the chemicals business, yet again. The average basket price fell during the quarter, so the half-year result is now an uptick in revenue of just 1% year-on-year in both the African and American segments of the chemicals business and 2% higher in Eurasia. Sales volume guidance for international chemicals has been adjusted downward.

Any silver linings? Well, they believe they have a solution to enhance the coal quality supplied to SO, with the benefits only expected to be felt in H1 FY26. They’ve also left the market guidance for both mining and gas unchanged.

The announcement includes references to “Final Investment Decision (FID)” all over the place. I worry about the level of bureaucracy in a company when they start inventing their own terms and then capitalising them to make them sound important. It’s just a decision. That’s all.

Speaking of decisions, the decision by the market has been pretty clear:

Super Group had a very tough interim period (JSE: SPG)

The exposure to the automotive retail industry isn’t helping

Super Group has released a trading statement dealing with the six months to December. You need a strong stomach for this one, with HEPS down by between 19.7% and 29.9%. Ouch!

Let’s start with the automotive dealerships businesses, which are suffering from the disruption to the sector by Chinese brands. Although Super Group is improving its representation of these brands, the legacy showroom footprint is the challenge. The South African business seems to have been more resilient than in the UK, with Ford really struggling in that market.

It also doesn’t help that the UK (like most of Europe) is obsessed with regulation. The Vehicle Emissions Testing and Standards (VETS) legislation requires original equipment manufacturers to ensure that 22% of new car sales are battery electric vehicles, otherwise there are financial penalties. This will increase to 28% by 2025. As Ford isn’t managing this very well in their passenger car business, Super Group will look to consolidate (i.e. cut back on) its dealership footprint in the UK.

Remember when Europe forced diesel vehicles down everyone’s throats until the emissions scandal broke? I really don’t understand why highly efficient petrol engines are so evil, but then again I’m not incentivised somewhere in the EV value chain like so many political lobbyists are. Sadly, companies like Super Group have to deal with the fall-out.

Against this backdrop, one would hope that the other businesses are doing well. Alas, Supply Chain Africa has to deal with pressures like coal export volumes and turnaround times at South African ports, along with the exposure to political unrest in Mozambique and the impact on coal export volumes through Maputo in the final quarter of 2024. You may recall reading about the Maputo port in the recent Grindrod update, as Grindrod and Super Group sit at different parts of that value chain. Copper exports are also being rerouted from Durban to Dar es Salaam and Walvis Bay, so the problems with our ports are really hurting the business.

The only other continuing operation is Fleet Africa, which earned itself a small paragraph in the announcement that talks to decent performance. It’s nowhere near big enough to carry the can by itself.

In the discontinued operations, SG Fleet in Australia is in the process of being sold. This is about the only thing that saved the Super Group share price in the past year, as the market liked the price on the deal. This will do wonders for the balance sheet, although Super Group expects to pay a R16.30 special dividend to shareholders so much of the cash will flow out of the group.

The other discontinued operation is Supply Chain Europe, which is also taking huge strain from the state of the automotive sector. They will try and find a buyer for this business. I doubt they will get great offers, as this is the exact opposite of selling when things are good.

After the special dividend, what is really left in Super Group that is structurally appealing? They are in a tough space right now and they really need a turnaround in South African infrastructure, as I can’t see things getting much better on the automotive side.

Nibbles:

• Director dealings:
  • A director of a major subsidiary of Southern Sun (JSE: SSU) sold shares worth R2.7 million.

• Labat Africa (JSE: LAB) has lamented the slow pace of regulatory change and has blamed this for the difficulties being felt in the South African cannabis market. For this reason, they are now looking at FinTech opportunities. This explains why the new CEO, Irfaan Mohammed, has a background in the ICT sector. The acquisition of Classic International for R16.275 million has been settled through the issuance of Labat Africa shares. Hopefully the new chapter for the company sees far more success than before.

• Oando (JSE: OAO) announced that Oando Energy Resources (OER) has been awarded operatorship of Block KON 13 in Angola’s Onshore Kwanza Basin. OER will have a 45% participating interest and will lead the development as operator alongside its partners. This is the entry point for Oando into the Angolan oil and gas market and is part of the long-term strategy for its upstream operations.