Ghost Bites (Copper 360 | KAP | Master Drilling)

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Several changes were made to Copper 360’s audited results (JSE: CPR)

It’s quite unusual to see this – and especially this many changes

Usually, a company releases its annual results on a provisional basis and then releases the audited results when they are finalised. This is typically a “no-change statement” when the final audited numbers are available, as it is rare to see any changes between provisional results and final results.

Not so at Copper 360, where there is a laundry list of changes. They had a tax adjustment as well as some changes related to application of the rules for business combinations. It’s all very technical stuff, with the net impact being that the headline loss per share is -12.6 cents, not -11.2 cents.

Hopefully we won’t see this again, as the market doesn’t love stuff like this.

KAP has given a tighter range for its earnings movement (JSE: KAP)

The direction of travel is unfortunately negative

When KAP first released a trading statement for the year ended June, they gave an indication that although Earnings Per Share (EPS) would be up by at least 20%, HEPS would not change by more than 20%. As KAP has been going through time times recently, the market knew that there wasn’t much of a recovery coming.

Sadly, it’s worse than that. Not only isn’t there a recovery, but there’s actually a further decrease in HEPS. It is expected to drop by up to 8%, coming in at between 43.3 cents and 47.3 cents.

Looking ahead, the successful commissioning of major capital projects in the second half of FY24 should give a boost to future earnings and enable a debt reduction over time.

With the share price at R3.09, KAP is trading on a trailing Price/Earnings multiple of 6.8x at the mid-point of earnings guidance. There’s plenty of room for upside if things do start going better for them, especially at Safripol as the major source of recent pressure.

HEPS is up at Master Drilling, but watch those impairments (JSE: MDI)

One of the main risks in the business is equipment utilisation

Master Drilling has been coming off the boil recently as many commodities have faced pricing pressure, with the share price down roughly 17% this year. This is about as close to selling-the-shovel-in-the-goldrush as you can possibly get these days, as the drilling equipment is used for mining exploration. When commodity prices are higher, there’s more exploration. The opposite unfortunately also applies.

The company has released a trading statement for the six months to June 2024. The HEPS movement is between -1.9% and 18.1%, so it’s probably going to come out as high single digits or perhaps low double digits. The trigger for the trading statement though was earnings per share (EPS), down by 76.5% and 96.5% thanks to impairments.

The reason is concerning, with an impairment recognised on equipment in the Americas that is currently not utilised, so they’ve taken a cautious approach while the group looks for alternative uses elsewhere in the world. They’ve also recognised an impairment on a Mobile Tunnelboring Machine as there are uncertainties over commodity prices for that equipment’s industry.

Although the market tends to focus on HEPS rather than EPS, I think it’s a bit different when income-producing machinery is potentially obsolete or no longer lucrative. This highlights an important risk in the business.

Little Bites:

• Director dealings:
  • After releasing disappointing results, Standard Bank (JSE: SBK) announced extensive sales by directors. I would take very careful note of this if I held Standard Bank shares. The total sales were worth roughly R50 million.
  • Des de Beer is back, buying shares in Lighthouse (JSE: LTE) worth R16.24 million. He really does manage his life from one closed period to the next!
  • An associate of the chairman of Stor-Age (JSE: SSS) has sold shares worth R11.6 million.
  • The company secretary of Oceana (JSE: OCE) sold shares in the company worth R212k.

• Brait (JSE: BAT) announced that Christo Wiese has unwound the total return swap transaction with Standard Bank, which means that Titan Premier Investments holds 37.4% of the voting rights in Brait. Before we get too excited about a mandatory offer, it’s worth remembering that Brait is a Mauritian company. My understanding is that the threshold for that mandatory offer would therefore be 50%. Happy to be corrected on this by anyone who understands the Mauritian takeover laws in more detail!

• In some positive news for Transaction Capital (JSE: TCP), the company announced that GCR has revised the rating outlook from Negative to Stable.

• Aside from announcing that there’s a scrip distribution alternative for the latest dividend, Lighthouse (JSE: LTE) has also further reduced its stake in Hammerson (JSE: HMN) by selling around 1.48% in the company if I’m understanding Hammerson’s notification correctly.

• The ex-CEO of MC Mining (JSE: MCZ) has been given 14 days to exercise his share options. He has 8 million share options, so it will potentially be quite dilutive if he does go ahead. The current market cap is R786 million and the share price is R1.90. Having said that, if he was going to exercise them, it would probably have happened already.

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