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Corporate finance corner (M&A / capital raises)

• Although it was obvious from yesterday’s announcement with the results of the meeting, Fortress has confirmed in a separate announcement that the attempt to collapse the dual-share structure has failed. Although over 60% of the FFA and FFB shareholders voted in support of the deal, it needed 75% approval as a special resolution. Fortress needed to meet the minimum distribution requirement of a REIT by 31 October 2022 and cannot do so due to the Memorandum of Incorporation and the rules for distributions. The company is now meeting with the JSE to figure out the way forward, as a REIT has never lost that status before on the JSE.

• Tsogo Sun Hotels has achieved resounding shareholder approval for the proposed transaction to commercially separate from Tsogo Sun Gaming and sell a hotel. The name has now formally been changed from Tsogo Sun Hotels to Southern Sun Limited, with new JSE share code SSU. The confusion of having two listed companies called “Tsogo” is finally behind us.

Financial updates

• Adcock Ingram has released a further trading statement for the year ended June 2022. In mid-July, the company guided earnings growth of “at least 20%” – the minimum disclosure under JSE Listings Requirements rules to trigger a trading statement. Things are a little better than that, with HEPS expected to be between 23.5% and 24.0% higher, coming in at between 500 cents and 502 cents. The share price is just over R51, so the Price/Earnings multiple is slightly over 10x.

• Exxaro has released financial results for the six months to June 2022, reflecting revenue growth of 48% and a 77% jump in net operating profit. Cash from operations was a huge R9.4 billion (vs. nearly R4 billion in the comparable period) and dividends from equity-accounted investments brought in another R3 billion. HEPS is only up by 26% though, as equity-accounted income from Sishen Iron Ore fell by 51% and this is reported below the operating profit line. The interim dividend is 23% lower than last year, coming in at R15.93 per share. The group derives 97% of its revenue from coal, which is why the earnings look so good for this period. Of course, it just wouldn’t be a coal industry announcement without a Transnet bashing section, so here it is in all its glory:

“Locomotive unavailability remains a huge challenge, which combined with cable theft, vandalism and sabotage of rail infrastructure, is impacting our logistics chain.”

Exxaro interim earnings release, 18 August 2022

• Curro has released results for the six months ended June 2022. Average learner numbers increased by 7% (now over 70,000) and revenue was up 15% (13.3% from tuition fees as a combination of inflationary increases and learner growth, along with 21.4% growth in ancillary revenue). Margins have expanded based on this revenue growth, with EBITDA up by 20%. It gets better the further down you look, with recurring HEPS up by 31%. There’s no interim dividend though, with management electing to wait for a final dividend. The credit loss provision was higher in this period than the comparable period, with R175 million in debtors from actively enrolled accounts and a substantial R74 million from inactive accounts. The real hangover of the pandemic is found in that debtors balance, with many families losing their income for reasons beyond their control. I will never forget the stupidity of extended lockdowns.

• Grindrod’s incredible share price run continues, closing over 8% higher after releasing a great update. This year, the share price has considerably more than doubled! This has been a combination of delivering a focused strategy and benefitting from Transnet’s incompetence, with the Maputo port becoming rather popular for South African exporters. Maputo Port volumes grew 30% in the six months to June 2021, driving earnings growth of over 100% in Grindrod’s Port and Terminals business. Over $110 million has been invested in the port to upgrade the infrastructure for greater chrome and ferro-chrome capacity, rail offloading facilities, road upgrades and berth rehabilitation. Even in Richards Bay, volumes were up 28%. This isn’t just a Maputo story. In the logistics side of the business, the shipping and container depot businesses performed well despite KZN’s best efforts to wash the containers into the sea. Interim insurance proceeds of R100 million were received to replace damaged equipment and infrastructure. Grindrod Bank is performing solidly, which is important as that business is being sold to African Bank for R1.5 billion. The other businesses planned to be sold are Marine Fuels, the private equity portfolio and the property exposure on the KZN north coast, which has been an albatross for Grindrod shareholders. With all said and done, core headline earnings (Port and Terminals, Logistics, Bank and Group) came in at between R514 million and R544 million in this period, up between 49% and 58%. Grindrod is absolutely cooking!

• Grindrod Shipping released results for the second quarter of the year, giving us a six-month view to June 2022. The group has announced its highest quarterly dividend ever of $0.84 per share. Supply is being constrained by minimal ordering of new vessels because of concerns over environmental regulations and the prices of new builds, so existing operators are charging high rates. In fact, the daily rate for handysize and supramax/ultramax vessels was significantly higher in this quarter than in the first quarter. At this stage, bookings for the third quarter are at fairly similar rates to the average over six months, which means they are down on second quarter rates. The dry bulk market has also experienced limited impact from higher inflation levels and interest rates. HEPS of $2.78 for the quarter is 186% higher year-on-year. The share price closed 15.8% up on this news, taking the year-to-date performance to around 30%! There has been much volatility along the way.

• Aside from Caxton and CTP Publishers and Printers fighting with Mpact on SENS, the business is actually doing really well. For the year ended June 2022, HEPS is expected to be 94.5% – 110.8% higher, coming in at between 146.7 cents and 158.9 cents. Results are expected on 12th September. The share price has put in a respectable performance this year, up around 12%.

• Blue Label Telecoms has released a trading statement for the year ended May 2022. HEPS is 34% – 38% higher than in the prior year. The expected range is between 115.62 cents and 119.06 cents. With a share price of R7 just after the announcement came out, that’s a trailing Price/Earnings multiple of around 6x. There is still much debate in the market over the ongoing attempts to keep Cell C alive.

• Workforce Holdings released a trading statement for the six months to June 2022. The outsourcing, recruitment, training and other services offered by the company led to HEPS of between 14.04 cents and 15.16 cents, an increase of between 25% and 35% vs. the comparable period.

• Randgold & Exploration Company has released a trading statement for the six months ended June 2022. A headline loss of 14.90 cents per share is a considerable deterioration from the loss of 7.37 cents in the comparable period. The share price closed over 19% lower, though this is mainly a reflection of the extent of the bid-offer spread.

• Buffalo Coal Corp released interim results for the six months ended June 2022. Revenue was up 7% and the loss from operations decreased by 92%. It was still a loss though, in this case R3.5 million off a revenue base of R187 million. No dividends have been declared.

Operational updates

• Thungela and Transnet have concluded an amendment to the long-term agreement in which Transnet gives below-par service to Thungela (and others) and gets lambasted for it over SENS on a regular basis. In early April, Transnet issued a Force Majeure notice to the Coal Export Parties (CEPs) based on issues outside of its control, like people stealing infrastructure (among other things). Transnet wanted to use these circumstances as a trigger to terminate the agreement, with the CEPs said no to. Instead, the parties went into a period of negotiation. The parties have now reached agreement on minimum rail capacity as well as rail tariffs, including performance penalties. Thungela does not believe that this agreement will have a material impact on the recently published operational outlook.

Share buybacks and dividends

• Tsogo Sun Gaming has declared a final dividend of 19 cents per share for the year ended March 2022. Don’t spend it all at once!

• EnX Group is paying a R1.50 special dividend, which is chunky when the share price is R7.20. The last day to trade is 30th August and payment will be made on 5th September.

• Guess what? Yup, British American Tobacco is still busy with daily share buybacks.

Notable shuffling of (expensive) chairs

• Aside from a few changes to board committees here and there, no exciting chairs were shuffled.

Director dealings

• An associate of Des de Beer continues to buy shares in Lighthouse Properties, this time to the value of R1.8 million.

Unusual things

• The Nutritional Holdings soap opera continues. The company has now identified the parties in the liquidation proceedings. Anthony Richard Pinfold is the former director who initiated the applications (there are two – one for Nutritional Holdings and one for Nutritional Foods) and if I understand the announcement correctly, Ontario Private Equity is the shareholder contesting the application. For Nutritional Holdings, a liquidator has been appointed and an application has been made to set aside the final liquidation order. For Nutritional Foods, the matter has been postponed to February 2023.