Monday, December 23, 2024

Ghost Bites: Vol 4 (22)

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  • Net1 is about to change its name to Lesaka Technologies, reinforcing the group’s South African strategy despite being listed on the Nasdaq in addition to the JSE (and reporting in dollars). The operating loss over the past nine months is more than $30 million, so all eyes will be on the acquisition of Connect Group to drive a group turnaround. I’ve written a feature article that you can read here.
  • Ascendis Health is probably our closest corporate equivalent to Game of Thrones at the moment. With six directors on the ballot for the Special General Meeting, it was the trio of Amaresh Chetty, Bharti Harie and Carl Neethling that were voted onto the board with support of around 61% of shareholders. The lenders have now applied a 4% ratchet to the debt (which means the rate on the R550 million facility will retrospectively increase to JIBAR plus 12.33%) based on a request for the annual financial statements for the Medical Devices business that could not be met in time. There’s plenty of gamesmanship going on around here. Netflix should consider this as a low-budget thriller to help improve its cash flows and attract some more local subscribers.
  • Famous Brands has released a trading statement for the year ended February 2022. Even if we ignore the prior year loss from discontinued operations of R1.1 billion, the percentage growth looks ridiculous. After selling many burgers and pizzas, headline earnings per share (HEPS) from continuing operations is up between 504% and 639%. A far more useful approach is to consider the earnings vs. pre-pandemic levels. The guidance for this period is 320 to 392 cents vs. 319 cents in FY19 and 393 cents in FY18. This means that Famous Brands has made a full recovery to pre-pandemic levels. The share price closed 1.7% higher yesterday at R59.00, a Price/Earnings multiple of around 16.5x at the midpoint. The share price is down 23.6% this year. It seems my efforts to help local wine producers with cash flow this winter will need to be extended to help Famous Brands with selling more food to prop up the share price. It’s tough out there but I’m here to help.
  • In a time of high corporate profits in mining and manufacturing businesses and considerable inflationary pressure on our most vulnerable people, the stage is set for labour unrest. With Sibanye already dealing with this, the next company on the list is ArcelorMittal. NUMSA has issued the company with a strike notice, as the union isn’t accepting a final offer of a 7% increase (5% on all remuneration elements and another 2% cash equivalent on those elements). NUMSA is demanding 15%, a number that I think we can all agree is silly. The share price has lost around 13.4% this year. I can’t explain why it rallied over 5% yesterday after this news though!
  • International ICT company Datatec has released a trading statement for the year ended February 2022. Despite supply chain issues that have plagued this sector in particular (like shortages of chips), group divisions performed well. The sales backlog also increased significantly year-on-year as a result of these constraints. HEPS will be between 15.5 and 16.5 US cents, a massive increase vs. 1.8 US cents in FY21. This puts Datatec on a Price/Earnings multiple of around 15x in round numbers, with a flat share price performance this year.
  • Trematon Capital Investments owns a variety of assets. To give you an idea of the diversification here, the group owns Club Mykonos in Langebaan and Generation schools among other businesses. I feel that I can comfortably speculate that liquidity in the stock is far lower than in the bars at Club Mykonos. For the six months to February 2022, revenue is up 18% and profit after tax is up 35%, with Generation as a major contributor (R8.1 million operating profit vs. R0.3 million operating loss in the comparable period). HEPS is only up 5% though at 2.2 cents. Intrinsic net asset value per share is R4.69 and yesterday’s closing share price was R3.84.
  • Investment holding company Universal Partners has released quarterly results. The net asset value (NAV) per share is similar to June 2021 levels after a dividend was paid in November. This UK-focused group owns a fascinating portfolio of investments including a dental consolidation group (yes, really), a contractor payroll solutions business, a financial group focused on high yield and distressed debt investing, a global recruitment business and a business called Propelair, which manufactures toilets. Ahem. The share price is R20.43 and the NAV per share is R28.85 at current exchange rates. There is currently a mandatory offer on the table from Glenrock for R18.63 per share, which I can’t see many shareholders taking unless they have large blocks of shares they want to sell in this illiquid company.
  • DRA Global has released an unpleasant trading update that guides a loss for the first half of FY22. Revenue for the full year is expected to be as much as 25% lower than FY21 and underlying EBIT (Earnings Before Interest and Taxes) is expected to be between $15m and $25m (vs. $56.5m in FY21). An impairment charge takes the first half into a loss. The company is losing money on some fixed-price construction contracts and has decided not to declare a dividend in respect of FY21. It’s never good news for shareholders when a dividend isn’t declared after a profitable year based on concerns about the subsequent year.
  • There’s some progress on the buyout of Long4Life by Old Mutual Private Equity for R6.20 per share. Other than finality on some financial conditions, the important news is that the Competition Commission has recommended that the deal be approved without conditions. The Tribunal needs to make the final decision on a merger of this size and will meet on 12th May to finalise this application.
  • Directors of education businesses Curro and Stadio are buying shares in the company. The year-to-date performance of those share prices is -20.7% and +13.3% respectively. I must be honest that I expected it to be the other way around, so I bought Curro earlier this year. I’m in no hurry to sell.
  • At EOH’s shareholder meeting to vote on the disposal of the Information Services Group, 99.93% of votes were cast in favour. No surprises there, as the company desperately needs to reduce its debt through a disposal process.
  • Property fund Rebosis is in the process of selling an enormous portfolio to Ulricraft, an entity backed by Vunani Capital Partners. Funding is taking longer than expected to be finalised, which is a nice way of saying that Ulricraft’s backers are running around in the market trying to find enough co-investors to make the deal work. Rebosis will only issue a circular to shareholders once the funding is secured, which the company hopes will be achieved by the end of June.
  • Blackrock (the world’s largest asset manager) now holds a 5% stake in Woolworths. I hope that the portfolio manager was sent one of those incredibly overpriced Chuckles shopping bags as a gift, as I’m not sure how else the retailer gets rid of them.
  • Salungano Group (previously called Wescoal Holdings) has announced the early retirement of CEO Michael Berry due to ill health. It always saddens me to read news like this. He has been with the company for 25 years. Thivhafuni Tshithavhane has been appointed as acting CEO.
  • Grand Parade Investments has changed auditor. After significant changes to the portfolio, EY (the previous auditor) found itself in a position where it would not be auditing the majority of GPI’s earnings, as subsidiaries can have different auditors to the group company. Deloitte & Touche has been appointed to replace EY.
  • Investec has invested nearly R150 million in buying back around 5% of its issued preference shares. We’ve seen this trend across local banks recently, as preference shares lost their shine as a source of capital when banking regulations changed and the liquidity in this asset class has been disappointing on the JSE. Some of the banks previously made offers to buy back all of their preference shares vs. just a share buyback programme. In Investec’s case, only 5% has been bought back under this programme.
  • A director of MAS Real Estate has bought a casual R16.9 million in shares in the company.

4 COMMENTS

  1. While I am sure you are attracting a younger set of new clients with your engaging and contemporary style, I appeal to you from your older readers to always consider whether some of the terms or concepts may need some further explanation.

    • Hi Helen! Absolutely, I would be keen to know which jargon needs to be busted? I try to explain terms where I can but I’m sure I miss a few. Let me know which ones you think warrant more detail? Thanks, Ghost

  2. Hi
    As an older person trying to invest on the Stock Exchange, and also trying to make head or tail of the JSE up, down shenanigans, I agree with Helen. We look forward to your comments, but we dont have a financial background. So elucidation of your comments re whats happening on the JSE and other financial opportunities elsewhere would be great. Investing on the JSE is not for the fainthearted these days. i.e thank goodness we got out of Aveng for example!!

    • Investing ANYWHERE isn’t easy at the moment, just look at offshore markets! I hope you’ll find that I explain as many concepts as possible, it’s been the way I built Ghost Mail from the start as a small weekly publication. This is especially true in the feature articles. Genuinely, if you find there are terms that aren’t being explained properly, please do point them out to me so I can improve! 🙂

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