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Corporate finance corner (M&A / capital raises)

• Although I would’ve thought that Mondi has its hands full with an orderly exit from the Russian market, the company clearly isn’t ignoring opportunities to grow elsewhere. Mondi is acquiring the Duino mill near Trieste in Italy for €40 million. Perhaps the group’s favourite corporate development employees were sent on this due diligence and the unlucky others were sent to Russia! The mill currently has one paper machine that produces lightweight coated mechanical paper. Mondi plans to invest €200 million to convert this to production of high-quality recycled containerboard – 420,000 tonnes of the stuff every year. The location near export harbours is the appeal here, as the mill can support Mondi’s corrugated solutions plans in Central Europe and Turkey, in addition to serving the Italian market.

Financial updates

• BHP Group has released results for the year ended 30 June. Revenue increased by 14% and HEPS is up by 54% to 439 US cents. Interestingly, the dividend has gone the other way, down by 13% from 200 US cents per share to 175 US cents. This is despite the group achieving record underlying EBITDA margin of 65% and record free cash flow of $24.3 billion for the year. Total dividends for the year represent a 77% payout ratio, well above the 50% minimum payout policy. Net debt has been squashed to just $0.3 billion, way down from $6.1 billion at the end of 2021. The Samarco disaster in Brazil in November 2015 is still haunting the group, with a provision of $1.1 billion raised in this period. The outcome of various legal proceedings and associated negotiations is highly uncertain, so this provision is guesswork at best. The report has loads of details, including the outlook for the various commodities produced by the group. You can read it here.

• Exxaro Resources released a trading statement for the six months to June 2022. Thanks to a strong performance in the coal business despite logistical and other challenges, HEPS is expected to be between 18% and 32% higher. Share buybacks have also helped drive this result, with the downer being lower income from the equity-accounted investment in Sishen Iron Ore. EBITDA increased by between 131% and 157%, reflecting the performance of the coal business (income from investments is not included in EBITDA). The HEPS range is R32.11 to R35.93 and the share price was up 6% in afternoon trade to R217.

• Santam released a trading statement for the six months to June 2022. Due to lower underwriting results and investment income, it doesn’t make for pretty reading. HEPS has fallen by between 43% and 62%. Net underwriting margin was positive but below the target range, impacted by adverse weather conditions and the KZN floods, with some of this impact mitigated by reduced Covid-19 business interruption claims provisions. The share price is flat over the past 12 months, with recent momentum firmly negative.

• Truworths released a trading statement for the 53-week period ended 3 July 2022. Remember, retailers typically report based on weeks rather than calendar years, which leads to a 53-week reporting period every few years. This obviously has an impact on comparability, as it is rather flattering to have another week of trade in your numbers (unless you are Massmart in which case less is more). At Truworths, HEPS growth on a comparable 52-week basis is between 38% and 43%, an impressive result and the highest ever HEPS achieved by the group. The share price is up more than 21% in the past 30 days after the company indicated to the market that a big result was forthcoming.

• KAP Industrial Holdings released an updated trading statement for the year ended June 2022. The news has gotten even better. The original trading statement noted HEPS from continuing operations of “at least 64.5 cents” and now that the company has more certainty over its results, that has been updated to a range of between 70.7 cents and 78.1 cents. This is an increase of between 64% and 82%. With discontinued operations included, the range increases to between 71.4 cents and 78.8 cents. The share price is flat this year, currently trading at R4.26.

• HomeChoice International has released results for the six months ended June 2022. The most impressive thing about these numbers is the 29.5% increase in operating profit off modest revenue growth of just 4%. Although retail sales fell by 10%, loan disbursements increased by 33.1%. Headline earnings per share (HEPS) increased by 16.6%. An interim dividend of 64 cents per share has been declared, up from 47 cents in the comparable period. Weaver Fintech (which recently acquired PayJustNow) contributed 84% of group profit, so just be well aware of what you are investing in here. This group has become a financial services player that also happens to sell products in a digital-first strategy (30% of HomeChoice Retail sales are digital). Notably, the gross margin in the retail side of the business expanded by 320 basis points.

• Transpaco released a trading statement for the year ended June 2022. HEPS has increased by between 38% and 45%, coming in at between 464 cents and 488 cents per share. The share price was 3.5% higher in afternoon trade, admittedly on very thin volumes. At around R24 per share, the Price/Earnings multiple is around 5x.

• Trencor released results for the six months to June 2022 and you may be shocked to see a big ol’ zero as the profit or loss attributable to shareholders. This means that the costs of maintaining this cash shell are less than R500k, or they would round up to a loss of at least R1 million. Trencor is just the old holding company for Textainer, the shipping container business that Trencor unbundled to shareholders as part of a restructuring process. Trencor is sitting on cash that will be distributed to shareholders once certain indemnities expire in December 2024. The net asset value per share is R7.07 and the share price is R5.39. The trouble is that if the indemnity is triggered (which Trencor believes is a remote possibility), it looks like all the cash would be gone.

Operational updates

• None today!

Share buybacks and dividends

• British American Tobacco has continued with its daily share buybacks.

• Capital & Counties Properties has confirmed the exchange rate applicable to the dividend. South African shareholders will receive 12.67712 ZAR cents per share before withholding taxes of 20% are applied.

• EnX Group’s special dividend of R1.50 per share has still not received approval from the SARB. The company has reminded the market that a finalisation announcement (with dates for payment) will only be released once approval is obtained.

• In the past week or so, Prosus repurchased shares to the value of $157 million and Naspers repurchased shares to the value of R808 million.

Notable shuffling of (expensive) chairs

• The CFO of Sirius Real Estate is taking 12 months paternity leave following the birth of his first child. He has formally left that role, with a plan to return as Group FD in September 2023. Alistair Marks, the Chief Investment Officer and former CFO, will step in as interim CFO while the group looks for a permanent replacement. Kudos to a corporate exec for prioritising what he believes to be more important than anything else – far too many people put work above everything else until it is too late!

• As part of releasing its results, BHP also announced two executive leadership changes. Edgar Basto has been appointed as Chief Operating Officer and Geraldine Slattery has been appointed as President Australia. I’ve always felt that the American convention of appointing a “President” sounds a bit awkward. Other options are usually “Country Head” or similar. Either way, there’s no shortage of talent at an organisation the size of BHP.

• Following the retirement its Chairman, Raubex has appointed Les Maxwell (currently the lead independent director of the board) as the Acting Chairman.

Director dealings

• A prescribed officer at Capitec has exercised share options and disposed of shares worth over R30 million. Nice life.

• The company secretary of Vukile Property Fund has sold shares in the company worth R505k.

• The company secretary of Thungela has bought shares in the company worth R257k.

• Someone has clearly been running a campaign for company secretaries to open trading accounts, because the company secretary of Sygnia exercised employee share options and promptly sold nearly the entire amount (R238k)

Unusual things

• Industrials REIT made a whoopsie in its recently reported numbers. A change in the number of diluted shares (those that would be in issue assuming all outstanding share options are exercised) means that diluted NAV per share is lower by 2 pence per share vs. what was reported (coming in at £1.76 per share). The total accounting return noted by the company of 25% should actually be 23.6% based on this correction. It’s uncommon to see corrections after the annual report was published.

• Quilter Plc also released a correction to numbers – it’s so odd to see two proper companies with mistakes in their numbers on the same day! Quilter’s recent announcement disclosed incorrect numbers for HEPS for the comparable period. The correct year-on-year comparison is HEPS of 11.7 pence in this interim period vs. 1.4 pence in the comparable period.

• Pembury Lifestyle Group is another example of a JSE-listed company that can’t even afford its audit fees, let alone anything else. The company is suspended from trading and needs to publish its financial statements going back to 2019. The proposed audit fee for the three years is R4 million. Pembury cannot afford that, so it reached out to previous auditors Moore to work out a deal based on different auditors at subsidiary and group level. Pembury still owes money to Moore as well as Abacus, another previous auditor. It’s all a bit of a nightmare. To make it worse, the CEO passed away suddenly in May and both the Designated Advisor (the title given to the advisor playing the role of JSE Sponsor for an AltX-isted company) and company secretary resigned. Some of the directors previously involved with the turnaround have agreed to return to the board. Talk about running a gauntlet!