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Our opinion on the current state of GEMFIELDS(GML)The Gemfields Group (GML) (previously Palinghurst Group) is a mining group that has two major projects: (1) Kagem, the world's largest producer of emeralds (in Zambia) and rubies (at Montepuez in Mozambique); (2) Jupiter Mines, a South African producer of manganese. The group is led by Brian Gilbertson, previously the CEO of BHP Billiton. Gilbertson identified that the semi-precious stones market was under-developed and offered an opportunity for consolidation and professional management - hence the Gemfield's operation. Jupiter was listed on the Australian Stock Exchange (ASX) in April of 2018, and in the process, Gemfields disposed of 60% of that company in line with its decision to cease being a diversified mining company and to focus purely on gemstones. The share is fairly well-traded with approximately R0.5m worth of shares changing hands on average every day. Like all commodity shares, it is risky and its fortunes depend on the prices of emeralds and rubies on the international market, as well as the risks associated with mining in third-world countries. It appears to have found a niche for itself where there is very limited competition, and it should do well as the world economy recovers. On 24th October 2022, the company announced that operations had resumed at MRM and key personnel had returned following an insurgent attack on a mine about 12km away on 20th October 2022. On 7th August 2023, the company announced that it would construct a new processing plant that would triple its output from the Montepuez ruby mine. In its results for the year to 31st December 2023, the company reported revenue down 23% and a headline loss of 0,9c (US) compared with a profit of 4,8c. The company said, "The Group’s financial performance was impacted in the year by the withdrawal of November 2023’s higher-quality emerald auction and an unrealised write-down of Gemfields’ non-core 6.54% equity holding in Sedibelo Resources, the platinum group metals mining company." Technically, the share rose off an island formation and entered a strong new upward trend which lasted until July 2023 when the trendline was broken. We recommend waiting until the downward trendline is broken - which has not yet happened. On 11th June 2024, the company announced the appointment of Bruce Cleaver as Chairman. In a report on 19th June 2024, the company said that in June 2024 auctions, it had sold $68,7m worth of rubies at an average price of $316,95 per carat.
JSE:GML
by PDSnetSA
Our opinion on the current state of LIBSTAR(LBR)Libstar (LBR) is a recently listed decentralised food and beverage company producing "consumer packaged goods." It raised R3 billion in an initial public offer (IPO) in May 2018. It owns the Denny brand, a leading mushroom supplier, and Lancewood, known for its dairy products, among other food brands. Altogether, it makes over 9000 products and has launched 88 new products in the past six months. The company produces private label brands for retailers like Spar, Woolworths, Pick 'n Pay, and Shoprite. A centralised head office supports and invests further in autonomous production units by supplying capital and expertise and making acquisitions. The company has spent R60 million on coping with COVID-19. Consumer spending is under pressure because of load-shedding, civil unrest, retrenchments, high unemployment, the residue of COVID-19, and now developments in central Europe. This company is entirely dependent on consumer spending. In its results for the year to 31st December 2023, the company reported revenue up 5,2% and normalised headline earnings per share (HEPS) down 11,2%. The company said, "Selling price inflation and mix changes contributed 10.0% to sales growth. Sales volume declined by 4.8% as the Group experienced a decline in its retail, industrial and export channels. Group net finance costs on interest-bearing debt (excluding IFRS 16 lease liabilities), increased by 53.3% from R109.8 million to R168.3 million, mainly due to the full period impact of the increase in the Johannesburg interbank average lending rate (JIBAR) compared to the prior period." In a voluntary trading update on 19th June 2024, the company reported revenue up 4,6%. The company said, "Revenue growth was driven by price and mix changes of 6.3%, against a volume decline of 1.7%. Perishable Products category revenue increased by 4.4%, with selling price inflation and mix changes contributing 7.7% to sales growth. Sales volume declined by 3.3% driven mainly by lower beef volumes in the food service channel." Libstar trades on a multiple of 8,2 and a dividend yield (DY) of 3,07%. Technically, the share has been in a downward trend for some time. We suggest waiting for a clear break above the long-term downward trendline.
JSE:LBR
by PDSnetSA
Our opinion on the current state of STADIO(SDO)Stadio (SDO) is a tertiary education institution that offers a wide range of post-school training. The company provides higher education through five universities, offering higher certificates, degrees, master's, and PhD qualifications. It currently has over 46,000 students enrolled in six faculties offering more than 50 accredited training programs. Notably, 86% of these students study online. The company envisions having 100,000 students, with most expected to be distance learning students. In its results for the year to 31st December 2023, the company reported revenue up 16% and headline earnings per share (HEPS) up 19%. The company's net asset value (NAV) increased by 1% to 212c per share. The company stated, "...despite a challenging economic environment, with good growth in student numbers for the year, specifically in new student numbers. The growth in EPS, HEPS and CHEPS is due to an increase in student numbers, coupled with good cost controls and efficiencies." In a business update at their AGM, the company reported that student numbers increased by 8% in the year to June 2024. This was made up of 86% of students in distance learning and 14% in contact learning. We believe that Stadio has a great future based on the general ineffectiveness of government tertiary education in South Africa. At current prices, and following their results, Stadio has broken up through its long-term downward trendline and is now on an upward trend. We are bullish on its prospects.
JSE:SDO
by PDSnetSA
Our opinion on the current state of SANLAM(SLM)Sanlam (SLM) is one of the largest insurance and financial services groups in South Africa. It was established in 1918 and demutualised in 1998, subsequently listing on the JSE and the Namibian Stock Exchange. The company operates in South Africa, the UK, America, Europe, India, Australia, and a range of other African countries. Its product range includes general insurance, life insurance, asset management, banking, credit, health, and bancassurance. The business has four essential elements: 1. Sanlam Investment Holdings (SIH) - now 25% owned by African Rainbow Capital 2. Sanlam Emerging Markets - which includes its 84.5% interest in Saham 3. Sanlam Personal Finance 4. Santam - in which it owns 61% Outside of South Africa, Sanlam has operations in 11 other African countries and Malaysia. Saham operates in 33 French-speaking countries with 3,000 staff members across 700 branches, offering a product mix similar to Sanlam's. Sanlam also owns 26% of Shriram, a leading provider of insurance products and financial services in India. Additionally, it acquired 69% of Catalyst Fund Managers, a Cape-based manager of listed property assets, and 100% of an Irish company, CIG Fund Management. About 50% of Sanlam's profits come from its personal finance operation primarily based in South Africa. Consequently, it is impacted by low levels of consumer spending and the economic recession in the country. Sanlam is 18% black-owned and has initiated a partnership with African Rainbow Capital (ARC) to focus on lower- and middle-income consumers and small companies. Sanlam will provide R2bn of seed capital for this initiative. On 14th June 2021, the company announced that it had acquired the Alexander Forbes group risk and retail life business for R100m. Furthermore, Sanlam announced that, like Discovery, it would require employees to be vaccinated against COVID-19 from 2022. In its results for the six months to 30th June 2023, the company reported the net result from financial services up 26% and headline earnings per share (HEPS) up 118%. The company said, "Cash net results from financial services increased by 30%, while net results from financial services increased by 26%. The improved performance was broad-based. Net result from financial services from our general insurance line of business increased by 38%, life insurance by 28% and credit and structuring by 36%." In an operational update for the nine months to 30th September 2023, the company reported new business volumes up 13% and operational earnings up 35%. The company said, "The solvency position of the group remained strong and within target ranges on 30 September 2023, with a group solvency cover ratio of 170%." In a trading statement for the year to 31st December 2023, the company estimated that HEPS would increase by between 43% and 53%. The company said, "The higher expected percentage increase in net operational earnings is due to higher investment returns on the shareholder capital portfolio." In an update on the three months to 31st March 2024, the company reported cash flow up 14% and investment returns up 15%. Sanlam is one of the JSE's foremost blue-chip shares with a history of steady growth over a long period. After recovering somewhat from the fall in markets due to the corona pandemic, it is currently trading on a P:E of 11.86. We consider it to be good value at these levels. In a joint announcement on 18th June 2024, Sanlam agreed to buy 60% of MultiChoice's insurance business for R1.2bn in cash.
JSE:SLM
by PDSnetSA
Our opinion on the current state of SEPHAKU(SEP)Sephaku (SEP) is a construction materials business in South Africa, supplying ready-mixed cement products and cement to the construction industry. The group consists of 100% of Metier Mixed Concrete and 36% of associate company Sepcem, with the remaining 64% held by Dangote. Sephaku is directly impacted by the difficulties in the construction industry. In its results for the six months to 30th September 2023, the company reported revenue up 19.7% and headline earnings per share (HEPS) of 7.54c compared with 11.26c in the previous period. The company said, "While the year-on-year value of residential buildings passed declined during 2023, activity on civil construction projects and non-residential buildings increased. The rising cost of essential goods and services, coupled with higher interest rates, continued to erode the disposable income of consumers, maintaining pressure on the retail market." In a trading statement for the year to 31st March 2024, the company estimated that HEPS would be between 24.5c and 26c compared to 9.98c in the previous year. The company said, "Métier Mixed Concrete (Pty) Ltd ("Métier") and Dangote Cement SA (Pty) Ltd ("Sephaku Cement") both demonstrated resilience and agility in maintaining market share, and Métier delivered strong growth in revenue and profit." The share was in an upward trend from July 2020 until October 2021 but has been falling and moving sideways since. It has R818,000 worth of shares changing hands on average each day, making it practical for the private investor. Although volatile, it appears to have found some support at around 85c and has begun moving up on its latest results.
JSE:SEP
by PDSnetSA
Our opinion on the current state of TELKOM(TKG)Historically, Telkom (TKG) was the government-controlled provider of fixed-line telephone connectivity in South Africa. With the advent of cell phones, Telkom was forced to subsidize the development of its own competition in the form of Vodacom, MTN, and more recently, Cell-C. This subsidy takes the form of termination rates for calls, which are now being phased out. Over the past twenty years, the CEO of Telkom, Sipho Maseko, says that Telkom has effectively subsidized other networks to the tune of R70bn. Telkom is currently listed and is owned 41% by the government and 11.9% by the Government Employees Pension Fund (GEPF) - so it could still be considered to be government-controlled. In reality, it operates as an independent organization divided into 5 divisions. (1) Open Serve is South Africa's primary supplier of wholesale connectivity with the country's largest network. (2) Telkom Consumer is the largest supplier of broadband internet connectivity with a growing mobile phone network. (3) Yellow Pages provides advertising and marketing to local businesses. (4) BCX is an ICT solutions company operating in Southern Africa. (5) Swiftnet was formed in April 2018 to house Telkom's masts, towers, and property interests. Swiftnet owns a diverse portfolio of 1,330 properties and has 40 earmarked for development. Of course, Telkom is impacted by the ruling of the Independent Communications Authority of South Africa's (ICASA) decisions regarding the so-called "inter-connect" fees. However, in our opinion, Telkom has been well managed, and its downsizing should result in improved profitability going forward. This company is steadily switching from fixed-line to mobile. On 23rd July 2021, the CEO, Sipho Maseko, announced that he would be stepping down with effect from 30th June 2022. On 22nd March 2024, the company announced that they had sold Swiftnet for R6.75bn to a consortium of investors. The cash will be used to reduce Telkom's debt. In its results for the year to 31st March 2024, the company reported group revenue up 1.6% and headline earnings per share (HEPS) up 201.3%. The company said, "Total headline earnings per share (HEPS)1,4,7,8 and basic earnings per share (BEPS)1,3 increased by more than 100% to 376.0 cents and 385.5 cents, respectively, driven by improved operational performance. From a loss position in the prior year, profit for the year also increased by more than 100% to R1.9 billion1,3, boosted by the non-recurrence of once-off restructuring costs and lower depreciation, while higher interest rates increased net finance costs compared to the prior year." Technically, Telkom's share fell from highs of around R98 in June 2019 to levels around R15.00 in March 2020. It has been moving sideways and down since then. The company has high debt levels compared to its market capitalization, which makes it risky for investors. In our view, this company is battling to find a new direction in a very difficult economy and against stiff competition, but the latest results are positive.
JSE:TKG
by PDSnetSA
Our opinion on the current state of THUNGELA(TGA)Thungela (TGA) is Anglo American's coal assets which have been unbundled into the hands of Anglo shareholders and separately listed on the JSE and the LSE because of Anglo's policy of moving away from carbon-based fossil fuels like coal. Anglo sold its last 8% of Thungela on 25th March 2022 for R1.67bn. Thungela is a major thermal coal exporter in South Africa. It has over 7,500 employees and exports coal to Asia, India, SEA, and East and North African countries. The company owns 50% of Phola, which operates a coal processing plant, and it has a 23.22% interest in the Richards Bay Coal Terminal (RBCT). The company has the capacity to produce over 90 million tons of coal per annum. The company operates 7 mines in South Africa, 4 open cast and 3 underground. In its results for the year to 31st December 2023, the company reported a profit of R5bn, down from the previous year's profit of R18.2bn. Earnings per share (EPS) fell to 3766c, down from 12708c. The company paid out a dividend of R2.8bn and bought back R500m worth of its own shares. The company said, "Industry railed volume of 47.9Mtpa in 2023, deterioration of 5% from last year. Mutual cooperation agreement establishes framework for procurement of critical spares on behalf of TFR. Industry deployed additional security on coal line." In a trading statement for the six months to 30th June 2024, the company estimated that HEPS would be between 700c and 1000c compared with 2246c in the previous period. Coal prices were down about 18%, and the free-on-board (FOB) cost per tonne is expected to be at the lower end of the range between R1170 and R1290. The share began trading on the JSE on 7th June 2021 and immediately fell to 2190c from 2600c. It was originally estimated to be worth a minimum of 4400c but reached a high of 37752c on 16th September 2022. Since then, it has been moving sideways and downwards with lower coal prices and problems with Transnet. Obviously, it is also subject to the volatility of being a single commodity share and dependent on Transnet to get its product to port. The company has committed to paying out at least 30% of "adjusted operating free cash flow" in the form of a dividend.
JSE:TGA
by PDSnetSA
Our opinion on the current state of MC-GROUP(MCG)MultiChoice (MCG) is a leading entertainment company in Africa and one of the fastest-growing pay-TV broadcast providers in the world with 21.1 million subscribers in 50 countries. The company's 90-day subscriber base is split 42% (8.9 million) in South Africa and 58% (12.2 million) in the rest of Africa. The share was spun out of Naspers and separately listed on the JSE on 27th February 2019. This company is probably close to an ideal company for the private investor because its income is mostly annuity income, in the form of debit orders, with a very diverse client group. It has virtually no working capital because it is essentially a service company and does not need to carry large stocks. It also does not have a large unskilled or semi-skilled workforce, although it has had union problems in the past. The potential for pay-TV in Africa appears to be substantial but may be eroded by 5G internet access in the future and the existence of free online access through platforms. Icasa (Independent Communications Authority of SA), in its efforts to boost competition, is looking at changing the rules for dominance in the pay-TV market, which may impact on MultiChoice. This may include changing the rules for dominance in sports coverage which has been MultiChoice’s strongest appeal. This would impact on MultiChoice’s ability to negotiate exclusive sports contracts. Obviously, this company is in the home entertainment business which received a boost from the COVID-19 lockdowns. On 2nd March 2023, the company announced that it had entered into an agreement with Sky News and NBC Universal to enhance the Showmax service and make it dominant in Africa. In its results for the year to 31st March 2024, the company reported revenue down 5% and a headline loss per share of 715c compared with a loss of 301c in the previous year. Core headline earnings per share (HEPS) was down 38%. The company said, "The group's 9% decline in active subscribers was mainly due to a 13% decline in the Rest of Africa business as mass-market customers in countries like Nigeria had to prioritize basic necessities over entertainment, while the South African business showed more resilience with a 5% decline." In our view, this is a solid blue-chip share which faces some problems with the alternative products available to its subscribers. On 5th February 2024, MCG reported that Canal+ had increased its stake in MCG to 35.01% triggering a mandatory offer at R105 per share to the remaining shareholders. The company rejected the offer as too low. On 28th February 2024, the company announced that the Takeover Regulation Panel (TRP) had ruled that since Canal+'s ownership of MCG had exceeded 35%, it was required to make a mandatory offer to buy out the remaining shareholders in terms of section 123 of the Companies Act (71 of 2008). On 6th March 2024, the company announced that Canal+ had increased its offer to R125 per share. On 7th April 2024, the company announced that it had reached a cooperation agreement with Canal+ in terms of which it would work with Canal+ to implement the takeover. On 24th April 2024, the company announced that Canal+ had acquired 41.6% of its issued shares and it had filed the required notices with the Takeover Regulation Panel (TRP) and the Companies and Intellectual Property Commission (CIPC). On 16th May 2024, Business Day reported that Canal+ had increased its stake to 45.2%. On 4th June 2024, Canal+ made an offer of R125 per share for all the remaining shares in MC Group which it did not own. Technically, the share had been falling since 6th March 2023 and we recommended waiting for a break up through the 65-day exponential moving average before buying. That happened on 19th December 2023 at a price of 7440c. After that, the share rose to just over R120 on 30th April 2024. Since then, it has been drifting down and has broken down through its 65-day exponential moving average. In a joint announcement on 18th June 2024, Sanlam agreed to buy 60% of MultiChoice's insurance business. This move is expected to strengthen MultiChoice's position and offer new growth opportunities in the insurance sector.
JSE:MCG
by PDSnetSA