Ghost Bites (Coronation | Grindrod Shipping | Harmony | Sirius Real Estate | Sasol | Standard Bank)

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Coronation shareholders: brace yourselves (JSE: CML)

The Constitutional Court ruling is coming on Friday morning

After much legal to-and-fro, the big day has finally arrived. The Constitutional Court will deliver a landmark ruling on Friday regarding Coronation’s battle with SARS and the tax assessment on its transfer pricing. This ruling will have ramifications for many South African corporates.

At 10am on Friday, the magic will happen. Watch that Coronation share price either way.

Grindrod Shipping approves the selective capital reduction (JSE: GSH)

This is effectively a take-out of minority shareholders

At a price of $14.25 per share, Grindrod Shipping shareholders were happy to say goodbye. Good Falkirk Limited and its concert parties were not allowed to vote on this deal to effectively cancel the shares held by non-controlling shareholders, so only those shareholders who would see their shares cancelled in exchange for that price were entitled to vote.

There was strong approval for the deal, with over 95% approval from those who voted.

Harmony has affirmed its guidance for FY24 (JSE: HAR)

This has been a poor year for safety at the group but a strong financial year

Harmony Gold has released far too many announcements recently that start with “loss-of-life” – a stark reminder that this is still a dangerous industry. There is much focus on safety, but any loss of life is unacceptable and the industry knows that. If it wasn’t for those incidents, Harmony would be putting together the perfect financial year. Against the backdrop of those incidents though, the financial performance for FY24 can only be celebrated to a lesser extent than would otherwise be the case.

For the year ending June 2024, Harmony is obviously taking advantage of strong rand-denominated gold pricing. They are also enjoying improved recovered grades, so the production metrics are strong at the right time, with total production expected to exceed the FY24 guidance of 1,550,000 ounces. All-in sustaining costs will be well below R920,000/kg.

Total capital expenditure will be marginally below the guided R8.6 billion, so that’s promising for free cash flow as well. The investment plan for FY25 is focused on the higher quality assets across both gold and copper, with Harmony looking to de-risk its business.

Sirius has recycled capital into new UK assets (JSE: SRE)

This is a good example of the typical approach taken by Sirius

Sirius Real Estate doesn’t sit still, which is why investors like the fund. To create additional value in property, it’s important to buy underperforming properties and turn them into gems before selling at a much better price. Rinse and repeat.

Sirius has been very busy with raising new capital and deploying it into assets. They also recycle capital by selling properties, like the disposal of two sub-scale assets in Hartlepool and Letchworth for £1.9 million. This was a 2.7% premium to the last reported book value.

The bigger news is the two industrial asset acquisitions in the UK for £31 million, representing a 9.2% net initial yield. These deals have been funded by the Maintal disposal, which was achieved on a gross yield of 6% for €40.1 million. Remember, you want to buy on a high yield and sell on a low yield. To improve the value of the properties that have been acquired, Sirius will use its extensive industrial asset platform in the UK.

Sasol gets a major win against Transnet – but it’s not over yet (JSE: SOL)

Talk about a windfall!

For beleaguered Sasol shareholders, every SENS announcement must seem scary right now. For once, there’s a good one to read. The High Court has a gift for you if you are a Sasol shareholder.

This goes back to an agreement in 1991 regarding the setting of pipeline tariffs for the conveyance of crude oil by Transnet for both Sasol Oil and TotalEnergies Marketing from Durban to the Natref crude oil refinery in Sasolburg. Sasol Oil and TotalEnergies are co-invested in Natref and in 2017, Sasol followed TotalEnergies in instituting legal action against Transnet for damages based on Transnet overcharging for a number of years.

After years of litigation and many happy lawyers, the High Court eventually handed down judgment in favour of Sasol Oil and TotalEnergies. Damages to the value of R3.9 billion plus interest of R2.3 billion were awarded to Sasol Oil. Even on Sasol’s market cap of R85 billion, that’s a welcome bit of news.

It’s not a guarantee just yet, as Transnet intends to appeal the ruling.

Standard Bank’s earnings growth has slowed down (JSE: SBK)

African currency exposures have applied the handbrake

Standard Bank has released an update for the five months to May 2024, with the key takeout being that HEPS is up by low-to-mid single digits. That’s a far more modest growth rate than we’ve seen from the bank in recent times, with movements in various African currencies relative to the ZAR to blame. On a constant currency basis, HEPS would be up by mid-teens, which is certainly more like it.

The banking activities achieved headline earnings growth of mid-single digits, with the trends in the first quarter continuing into the subsequent months. Income growth was driven by the combination of higher average interest rates and transactional volumes at clients, with trading revenues as a dampener on the numbers. Balance sheet growth has also slowed down, with clients perhaps struggling to justify ongoing growth in debt at these rates. Importantly, income growth was ahead of operating expenses growth, so there was positive jaws – a key metric in banking that measures the direction of travel for operating margin. Impairments were higher in the retail and business banking books in particular, partially offset by lower charges in the corporate and investment banking book. The credit loss ratio is above the group’s through-the-cycle target range of 100 basis points.

In the insurance and asset management segment, a better risk claims experience in South Africa helped drive earnings. This benefit was partially offset by the impact of the Nigerian naira on the asset management earnings in Africa.

At ICBC Standard Bank, earnings were profitable but lower vs. the comparable period which was a high base.

The group’s Return on Equity (ROE) is down year-on-year but has remained in the target range of 17% to 20%.

When you consider just how strong the base period is, this remains a decent set of numbers at Standard Bank.

Little Bites:

• Director dealings:
  • A director of Investec (JSE: INL | JSE: INP) sold shares worth £885k.
  • Here’s one you don’t see every day: a director of Capitec (JSE: CPI) has donated shares to a charitable foundation to the value of R2.6 million.
  • An independent non-executive director and an associate of Bytes Technology (JSE: BYI) bought shares in the company worth nearly £48k.
  • A director of a major subsidiary of RFG Holdings (JSE: RFG) sold shares worth R738k.
  • A director of Afrimat (JSE: AFT) sold shares worth R508k. Separately, an associate of director of Afrimat sold shares in the company worth R140k.
  • A director of a major subsidiary of Sanlam (JSE: SLM) sold shares worth R326k.
  • An associate of Piet Viljoen bought shares in Astoria Investments (JSE: ARA) worth nearly R320k.
  • Associates of the CEO of Spear REIT (JSE: SEA) bought shares in the company worth R220k.
  • A director of a major subsidiary of Vodacom (JSE: VOD) sold shares in the company worth R193k.
  • Sean Riskowitz bought further shares in Finbond (JSE: FGL) worth R75k. A different director bought shares worth R69k.
  • A director of Premier Group (JSE: PMR) bought unlisted A1 ordinary shares worth R225. That may sound entirely unimportant, but just be aware if you are a shareholder here that there are two classes of shares. Digging into the rights of the A1 shares would be wise if you hold Premier shares.

• Capital & Regional (JSE: CRP) announced back in May that controlling shareholder Growthpoint (JSE: GRT) had received a preliminary expression of interest from NewRiver REIT in relation to a possible offer in shares and cash for Capital & Regional. The original PUSU (the “put up or shut up” – i.e. commit to an offer or not) deadline was 20 June, which has obviously passed. Discussions are still underway and the Takeover Panel has consented to an extension to 18 July.

• MTN (JSE: MTN) announced that the offer of MTN Uganda shares to the public was heavily oversubscribed. MTN made a portion of its holding in MTN Uganda available to the public to raise funds and increase the local float. The offer was 2.3 times oversubscribed, so there was strong interest in the shares. MTN Uganda has attained the 20% minimum public float requirement as well.

• Although a director dealing, I wanted to include this separately to the others as a hedging transaction isn’t the same as a sale or purchase. Barry Swartzberg has bought put options over Discovery (JSE: DSY) shares at a strike price of R112.03 (giving downside protection below this level), in two tranches, with exercise dates in mid-2025 and December 2025. In both cases, the notional value is R84 million. To finish the collar structure, Swartzberg chose to give away upside by selling call options with a price of R172.32 per share for mid-2025 expiry (R129 million in value) and a price of R187.29 per share for end-2025 expiry, with a value of R140 million. The current share price is R134.

• Kibo Energy (JSE: KBO) has announced its new corporate restructuring plan. Considering that the last one had a very short lifespan before being cancelled, forgive me for not putting too much faith in this plan at this stage. Either way, Louis Coetzee is on his way out as CEO. A placing of £340,000 is part of this plan. The debt reduction with Riverfort announced earlier this month remains in place.

• Trustco (JSE: TTO) announced that the Supreme Court of Appeal upheld the JSE’s directive to Trustco to restate its financial statements. This restatement already happened, so there’s actually no further action required. This was purely a matter of legal precedence. Interestingly, the court confirmed that members of the Financial Services Tribunal do not need to have experience or expert knowledge of financial services or the financial system in order to adjudicate on a case. Do with that what you will.

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