FirstRand’s UK motor finance business has adapted to recent legal findings (JSE: FSR)

This doesn’t change the fact that FirstRand will appeal the findings

After FirstRand got a nasty surprise in the UK courts in relation to how its motor finance business works, it had to halt all origination of new deals to try and make sure that new business being written is compliant with the current approach being taken by the courts. This affects the entire industry, not just FirstRand’s business.

The business in question in the UK is called MotoNovo and the most Novo thing about it is the new documentation and processes that make it compliant with the new legal requirements that the court believes are valid. It’s a bit awkward, as MotoNovo needs to assume that the court is right in order to continue doing business, but FirstRand is still going to appeal everything in the hope of going back to how things were, or at least avoiding harsh penalties.

MTN Rwanda is being severely hurt by regulations (JSE: MTN)

This African subsidiary is a great reminder that there are risks beyond just currencies

Adding its name to the list of MTN’s African subsidiaries that have released earnings updates, MTN Rwanda has entered the fray with a set of numbers that make for tough reading. We know from Nigeria that issues like currency weakness can really plague African businesses. MTN Rwanda is a reminder that regulatory risks are never far away either.

The problem in Rwanda relates to mobile termination rates (MTR) and the costs being borne by the business since the zero-rating of MTR in August 2023. The hope is that the regulator will introduce a suitable MTR before the end of the year, along with other important changes around international roaming that should improve the economics at MTN Rwanda.

In the meantime, the business has to suffer through revenue growth of just 1.6% and an EBITDA decline of 22.6%. This led to an ugly EBITDA margin decline of 10.9% percentage points to 34%. Profit after tax is negative, thanks to the drop in EBITDA and higher depreciation on the tower leases.

Excluding leases, capex fell 18.9%. This is an important message to the regulator: if the economics are unattractive, there will be less investment in the country.

How much will a directive on MTR help? Well, for FY24 (and remember three quarters are done already), they expect EBITDA margin of 36% – 38% without any regulatory change and 38% – 40% if change comes through. If a change right near the end of the year can make a 200 basis points impact, it’s big.

More progress in the Nampak disposal plan (JSE: NPK)

This raises another R142.5 million

Nampak has announced yet another asset sale, a further feather in the cap for the management team that has made such progress on the turnaround thus far.

The latest disposal is the industrial inkjet printing, laser marking and case coding business for a price of R142.5 million. The deal is too small to require further disclosure under JSE rules, so that’s as much as we will ever know.

Novus flags a jump in earnings and some acquisitions from Media24 (JSE: NVS)

It sounds like the timing of orders has played a major role here

Novus has released a trading statement dealing with the six months ended September. They’ve guided a rather insane jump in HEPS of between 96.3% and 116.3%. Before you get too excited, they go on to say that a big boost has been from orders received early this year, sitting in revenue for the interim period in this year vs. the second half in the base year. That obviously skews the interim results and would normalise over a full-year view.

They also note profits from derivative instruments as a factor. In other words, this very large jump in profits isn’t because the business is suddenly twice as good as it was a year ago.

They have been busy on the dealmaking front, acquiring On the Dot, Community Newspapers and Soccer Laduma and Kick Off from Media24. The total deal is worth 1.6% of Novus’ market cap, which implies around R43 million for the deal across all three businesses.

Decent enough numbers at Pepkor, but nothing too exciting (JSE: PPH)

You have to read HEPS carefully here

Pepkor has released a trading statement for the year ended September. Normally, this would mean a move in earnings of at least 20%, which is big news either way. Importantly, that can be a move in earnings per share (EPS), which includes once-offs and non-core items), or headline earnings per share (HEPS), which takes those things out. Big percentage moves in EPS are far more common than HEPS. This is one such example.

An important feature of this update is that the base year had an extra trading week, so you certainly can’t compare it directly to 2024 as you’re short a trading week this year. This is why HEPS from continuing operations as reported without that adjustment is expected to be -6% to +4% vs. FY23. If you adjust for the extra week and a non-recurring lease gain that made its way into HEPS, the move is an increase of 5% to 15%. That makes more sense.

On a comparable 52-week basis, group revenue was up 9.2%. Clothing and general merchandise was up 7% and the furniture, appliances and electronics segment managed 4.5%. Fintech revenue was unsurprisingly the leader of the pack, up 26.8%.

In case you’re wondering, the discontinued operation is The Building Company. Also keep in mind that Pepkor is in the process of acquiring Shoprite’s furniture business, so you can see that they are moving further into retail categories that can be supported by credit sales. The integration of the credit business into all facets of Pepkor’s business is a major growth driver for them.

There are some substantial asset impairments in this period, mainly driven by ongoing uncertainty at Ackermans, Tekkie Town and Shoe City.

There’s unfortunately absolutely no mention of the performance of Avenida in this trading statement, so we need to be patient to see how the South American story is going.

Nibbles:

• Director dealings:
  • Adrian Gore has put some protection in place over his Discovery (JSE: DSY) shares, with an option trade with exposure of around R346 million at current prices. The structure is a put option with a strike price of R172.38 (downside protection) and a call option at R283.07 (giving away upside to fund the trade). The options expire in 2028. The current price is R182.
  • A non-executive director of BHP (JSE: BHG) bought shares worth $427.9k (around R5 million). A senior executive of BHP also bought shares, albeit for a much smaller A$61.8k (around R720k).
  • There was some reinvestment of dividends and related share awards at British American Tobacco (JSE: BTI) but I don’t usually highlight this as I don’t see it as a strong signal for the current share price. I felt it was worth sharing my viewpoint on this in case you wondered why the trades don’t usually get included here.

• Alphamin (JSE: APH) has filed its Q3 financials. EBITDA is in line with what was announced for this period at the start of October, hence I’m only referencing this in the Nibbles as it isn’t actually fresh news. As a reminder, it was a huge quarter with record tin production and EBITDA up 69% quarter-on-quarter! This was driven by a 71% increase in tin sales vs. a 22% increase in tin production, a useful reminder that Alphamin’s sales can be quite lumpy when viewed on a quarterly basis.

• Datatec (JSE: DTC) shareholders should be aware that there’s a scrip dividend underway. Instead of receiving a cash dividend of 75 cents, they can elect to receive Datatec shares instead. It doesn’t look as though there’s an exciting discount to entice shareholders to choose the shares. Full details are in the circular, for those who are invested here.

• Cilo Cybin (JSE: CCC) is still busy with negotiations to acquire Cilo Cybin Pharmaceuticals as its first viable asset. I know that sounds daft, but it’s because the listed entity was set up as a special purpose acquisition company (SPAC) to acquire Cilo Cybin and so they adopted the name for the listed company in advance. They are basically in the process of finalising the terms of the acquisition.

• Following on from recent similar announcements by various other small- and mid-caps, enX (JSE: ENX) and Huge Group (JSE: HUG) have confirmed that they are also moving to the general segment of the JSE. This is an easier regulatory framework that takes some of the burden off smaller groups.