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Our opinion on the current state of BATS(BTI)British American Tobacco (BTI) describes itself as a "leading consumer goods company," which is a euphemistic way of saying that they produce and sell an enormous number of cigarettes and related products worldwide. It is also the second largest company on the JSE after Naspers. In recent decades, cigarette companies have become increasingly oppressed. Their ability to advertise their products and even package them has been severely curtailed in many countries. They are seen to be exploiting an addiction which is clearly anti-social and very bad for the individual's health, and which regularly involves them in lawsuits for damages. BAT owns well-known brands like Camel, Peter Stuyvesant, Rothmans, Benson & Hedges, Dunhill, Pall Mall, Kent, and Lucky Strike. In an effort to get away from the negative perceptions of cigarettes, the company has diversified into "new category" products such as vaping and electronic cigarette markets which it claims offers it a long-term prospect for growth. Recently, especially in the United States, these products have also come under the spotlight for health reasons leading to a drop-off in sales. As an investment, the company offers some attractions. Roughly 20% of the world's population still smokes - making a truly massive market. Setting aside our distaste for the business which BAT conducts, the share looks like very good value at current levels. This is one of the shares that has performed well and perhaps even benefited from COVID-19. The CEO says that he aims to double non-combustible sales by the 2023/24 year. It is interesting that BAT considers South Africa's illegal cigarette market to be the largest in the world. On 6th December 2023, Business Day reported that BAT had impaired its US operations by GBP25bn (R595bn) leading to a drop of 10% in the BTI share price. In its results for the year to 31st December 2023, the company reported revenue down 1.3% and a diluted loss per share of 646.6 pence. The company said, "Strong volume led New Category revenue growth - driven by Vuse and Velo, with revenue from Non-Combustibles now 16.5% of Group revenue, up 170 bps vs FY22." In an update on 4th June 2024, the company reported that it was on track to achieve its FY24 guidance. The company said, "We are driving a further improvement in New Category profitability through our Quality Growth focus on a more balanced top-line and bottom-line delivery. In Combustibles, U.S. commercial plans continue to gain traction despite a challenging macro-economic backdrop; in AME and APMEA we gained volume and value share, with robust H1 pricing." The share now looks cheap to us on a P:E of 6.84.
JSE:BTI
by PDSnetSA
Our opinion on the current state of MTMMomentum Metropolitan (MTM) is an insurance company listed on the JSE and the Namibian stock exchanges. It was formed by the merger of Momentum and Metropolitan in December 2010. The company participates in all aspects of short and long-term insurances and various financial services. It was the first insurance company to achieve level 1 BBBEE status. Recently, the company has been closing its businesses in Mozambique, Mauritius, Zambia, Tanzania, and Swaziland. At the time of the merger between Momentum and Metropolitan, they had a combined 24% of the life insurance market in South Africa, which has now reduced to 17%. In the first quarter of 2021, the company paid out almost R4bn in death claims, three times higher than anticipated, mainly due to the 2nd wave of the virus. The company indicated it would consider managing with about 60% of its current office space due to the move to work-from-home as a result of COVID-19. On 26th May 2023, Business Day reported that Jeanette Marais would take over from Hilgard Meyer as CEO on 30th September 2023. In its results for the year to 30th June 2023, the company reported net income of R125bn, up from the previous year's R70.1bn. Earnings per share (EPS) increased to 313.3c compared with 260.6c in the previous year. The company said, "During July 2022, the Group, through its wholly owned subsidiary, Metropolitan International Holdings (Pty) Ltd, disposed of its entire shareholding in Metropolitan Cannon Life Assurance Ltd and Metropolitan Cannon General Insurance Ltd. A loss on disposal of R112 million was recognised. During October 2022, the Group’s holding in Aditya Birla Health Insurance Company Ltd (ABHI) was diluted from 49% to 44.1% with the introduction of a new shareholder as a partner in the business. As a result, a gain on deemed disposal of R563 million was recognised. The Group bought back a total of 73 million shares (for a cost of R1 250 million including transaction costs) during the current year. These shares were cancelled prior to 30 June 2023." In an operational update for the 3 months to 30th September 2023, the company reported new business premiums up 18% and a claim ratio of 66%, down from the previous period's 70%. The company said, "As at 20 November 2023, the Group had bought back 24 million shares, of which 16.5 million have been cancelled, for a total consideration of R498 million." In the nine months to 31st March 2024, the company reported recurring premium income down 15% and single premiums up 32%. Assets under management (AUM) were up 14% at R265bn. Technically, the share has begun to move up in recent months and may be entering a new upward trend. On a P:E of 8.18 and a dividend yield (DY) of 4.89%, it looks reasonably priced to us.
JSE:MTM
by PDSnetSA
Our opinion on the current state of SYGNIA(SYG)Sygnia (SYG) describes itself as a "specialist financial services group." It is South Africa's largest provider of exchange-traded funds (ETF) and has a number of unit trusts. The company has R217.7 billion under management and appears to be taking market share away from other asset managers. Sygnia Itrix makes it possible for Sygnia to attract funds looking for offshore exposure. The fact that Sygnia was able to increase assets under management during such a challenging time indicates that it has caught the attention of fund managers. The company's revenue is a function of its ability to continue to attract funds for management. We believe that this company could be quite similar to Coronation in early 2012 when that company was relatively cheap and subsequently grew four-fold. In its results for the six months to 31st March 2024, the company reported assets under management (AUM) up 9.1% to R341.3 billion and headline earnings per share (HEPS) up 9.7%. The company said, "Group revenue for the six months to 31 March 2024 increased by 8.7% to R444.2 million (31 March 2023: R408.6 million), while total expenses rose by 8.0% to R253.8 million (31 March 2023: R235.0 million). After accounting for net interest and investment income and finance costs of R20.0 million (31 March 2023: R18.0 million), pre-tax profit amounted to R210.4 million (31 March 2023: R191.6 million)." Technically, the share has been in an upward trend since COVID in March 2020. We see that upward trend as continuing. On a P:E of 10.31 and a dividend yield (DY) of 8.2%, it looks like good value.
JSE:SYG
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 likely close to an ideal investment for private investors 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 requirements 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 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 MultiChoice. This may include changing the rules for dominance in sports coverage, which has been MultiChoice’s strongest appeal. This would impact MultiChoice’s ability to negotiate exclusive sports contracts. The 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 six months to 30th September 2023, the company reported revenue down 1% and headline earnings per share (HEPS) down 5%. The company said, "...the group's overall 90-day active subscriber base contracted by 2% (0.4m) to 21.7m. The Rest of Africa base, accounting for 60% of linear customers, grew by 1% to 13.0m. The South African business had to contend with the effects of ongoing high levels of loadshedding as 43% of the days in the reporting period were impacted by stage 4 - 6 loadshedding." In our view, this is a solid blue-chip share which faces some challenges due to 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+ 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. Since then, the share has risen to 11235c.
JSE:MCG
by PDSnetSA
Our opinion on the current state of AYOAYO is a black-owned technology company that was spun out of AEEI, which still holds a 49.4% stake. The company has been mired in controversy, notably due to a massive R4.3 billion investment by the Public Investment Corporation (PIC), which led to a court action by the PIC. This was finally settled on 31st March 2023, with AYO paying the PIC R619 million. Essentially, PIC pensioners appear to have lost billions of rands. AYO shares listed at R43, fell to as low as 105c, but are now around 305c after their latest results. Volumes traded are very thin, with many days where it does not trade at all. The company has 1,400 employees. Its income appeared to come from interest on the remainder of the PIC loan. This share is difficult to assess and potentially dangerous, especially after the testimony from the former financial director, Siphiwe Nodwele, before the Mpati Commission, that the company is probably only worth R700 million, and the testimony of Naahied Gamieldien, previously the CFO, who said she had to "...adjust margins to increase the company's profit," which resulted in the profit doubling. In October 2019, the Financial Sector Conduct Authority (FSCA) conducted a raid on Survé's offices as part of an ongoing investigation. FNB has closed AYO's bank accounts, citing reputational risk. AYO is opposing this in a court action and, in an announcement on 30th April 2021, claims to have put in place "alternative third-party solutions" to enable the company to continue trading. We advise investors to stay well clear of this share until the uncertainties surrounding the Mpati commission can be resolved. On 1st June 2021, British Telecom (BT) announced that it was severing ties with Sekunjalo due to "misrepresentation of facts" before the standing committee on finance in parliament. On 10th February 2022, the JSE announced that two AYO directors had been barred from being directors of a listed company for five years due to failing to carry out their oversight duties, leading to incorrect, false, or misleading financial statements. On 22nd December 2022, the JSE published a censure of AYO for their involvement in related party transactions without complying with the JSE rules on such transactions. On 24th March 2023, the company announced that it had reached an undisclosed out-of-court settlement with the PIC, but it seems unlikely that the PIC will recover the R4.3 billion which it advanced to AYO. In its results for the six months to 29th February 2024, the company reported revenue up by 0.19% and a headline loss per share of 33.12c compared with a loss of 79.13c in the previous period. We cannot recommend this share to private investors because we do not trust its reporting. On 6th September 2023, the JSE publicly censured a director of AYO, Khalid Abdulla, for breaching the listing requirements and failing to exercise his fiduciary duties. He was fined R2 million, and AYO was fined R6.5 million.
JSE:AYO
by PDSnetSA
Our opinion on the current state of BRIKOR(BIK)Brikor (BIK) is a company that manufactures bricks, roof tiles, and clay pipes. It was listed on the Alt-X in August 2007 and describes itself as "...a diverse manufacturer and supplier of building and construction materials across a broad spectrum of the market from low-cost housing, residential to commercial, industrial, civil engineering, and infrastructure projects and has a brick and coal segment through its subsidiary, Ilangabi Investments." The company is trying to improve its BEE status. The share was suspended on the JSE from the end of July 2013 to 31st July 2020 at 9c per share. Since it resumed trading, it has shot up to 199c before settling back to 15c. In its results for the year to 29th February 2024, the company reported revenue up 12.4% and headline earnings per share (HEPS) of 1.3c compared with a loss of 0.1c in the previous period. The company's net asset value (NAV) increased 7.8% to 13.9c per share. The company said, "Revenue in the Bricks segment increased by 6.8% to R226.0 million (F2023: R211.6 million). The increase in revenue was a direct result of inflationary increases in selling prices of bricks with sales quantities being in line with the previous reporting period." The average value of shares changing hands each day has fallen to around R7,700, which makes it impractical for private investors. The patchy revival of the construction sector since 2021 has been a positive factor. Selling bricks is a tough business in South Africa, and this company seems to have survived COVID-19, which speaks volumes for its management.
JSE:BIK
by PDSnetSA
Our opinion on the current state of HUGE(HUG)Huge (HUG) is a telecommunications, media, and software company with operations in South Africa, Mozambique, Namibia, Lesotho, Swaziland, Botswana, Zambia, and Zimbabwe. It has the following main operating subsidiaries: Huge Cellular (49%), Huge Networks (50.03%), Huge Technologies (100%), Huge Telecoms (100%), Huge Soho (49%), Huge Media (96%), Huge Messaging (100%), and Huge Mobile (100%). The company is involved in payment connectivity, connecting payment terminals of merchants, ATMs, points of sale, telemetry applications, micro-lending, and medical script verification. In its results for the year to 29th February 2024, the company reported headline earnings per share (HEPS) of 20.5c compared with 46.38c in the previous period. The company's net asset value (NAV) was 964.54c per share. The company said, "During FY2024 no Shares were issued or repurchased during the financial year. During FY2023 Huge Telecom sold 2 732 410 Shares at an average price of R3.3787 per Share. Huge Group repurchased 500 000 Shares at an average price of R2.9580 per Share. For the year ending 29 February 2024, Huge Group’s reported net asset value is R1 582 million, representing an almost 50-fold increase over a decade and demonstrating Huge Group’s ability to create exponential value." Technically, the share produced a textbook triple top at around R10 and has been falling since then. At the current price of 233c, the share is on a multiple of 11.37. The average daily value traded is under R10 000, which is insufficient even for a small investment. In our view, this share has definitely not yet attracted significant institutional interest and is still trying to establish itself in a competitive and fast-changing industry. It is profitable, but its earnings are volatile.
JSE:HUG
by PDSnetSA
Our opinion on the current state of MAHUBE(MHB)Mahube (MHB) is an infrastructure holding company that reversed into Gaia and is involved in large-scale energy, transport, water, and sanitation projects. It is 41.35% owned by the Government Employees Pension Fund (GEPF). The company says, "Mahube Infrastructure owns five renewable energy assets – two wind farms and three solar PV (photovoltaic) farms – all of which were licensed by South Africa’s department of energy in the first round of bids of the renewable energy independent power producer procurement programme. The assets are all currently in operation, generating electricity, which they sell to Eskom in accordance with 20-year power purchase agreements." In its results for the year to 29th February 2024, the company reported revenue of R68.2 million and headline earnings per share (HEPS) of 95.85c compared with a loss of 53.68c in the previous period. The company said, "The dividend income portion of this total revenue was R50.1 million, increasing from R18.0 million in the prior year. This increase in dividend income is attributable to healthy dividends received from our investee companies, together with two of the projects paying special dividends with their respective project refinancing." The average value trading in the share is only R5,300, which makes it impractical for private investors.
JSE:MHB
by PDSnetSA
Our opinion on the current state of MAS(MSP)MAS (MSP) is a real estate investment trust (REIT) that invests in office, commercial, logistics, retail, and hospitality properties in Europe and the UK. This REIT was started by Martin Slabbert and Victor Semionov, who are well known for establishing NEPI - which merged with Rockcastle. They are highly regarded as European property experts. The company is involved in a program to "restructure and grow" its balance sheet. This is being done by selling properties in Western Europe and buying income-generating properties with good growth potential in Central and Eastern Europe (CEE). The company has tripled the size of its asset base since 2016. In its results for the six months to 31st December 2023, the company reported adjusted distributable earnings up 6% and tangible net asset value (NAV) up 10% at 1.60 euros per share. This performance was due to, "...standing retail properties' exceptional operational performance in CEE, leading to increases in passing NRI and improved asset valuations, enhanced by excellent rental and service charge collections, as well as the positive effect of DJV opening Carolina Mall on 31 August 2023." The company had a loan-to-value (LTV) of 24.3% and a collection rate of 99.6%. In a pre-close update on 31st May 2024, the company said, "Overall, like-for-like ('LFL') footfall for the four months to 30 April 2024 was 5% above the same period in 2023, and tenants' sales per m2 exceeded prior year levels by 6%, both in enclosed malls and in open-air malls." In our view, this is one of the better REITs on the JSE and well worth looking at if you want to buy a property stock in the rapidly expanding European property sector. Obviously, it is a rand-hedge, and it is trading well below its net asset value (NAV). On 25th January 2021, Business Day reported that the Oppenheimer family had acquired a substantial stake in MSP for approximately R500 million. When and if the Ukraine crisis is resolved, we see this share recovering rapidly.
JSE:MSP
by PDSnetSA
Our opinion on the current state of OANDO(OAO)Oando (OAO) is an oil and gas company located primarily in Nigeria. It has listings on both the JSE and the Nigerian Stock Exchange. The problem with a share like this from a private investor's perspective is that it is highly risky. Firstly, it is a commodity share whose fortunes are determined by the international price of oil. Secondly, its business is located in Nigeria, which tends to be politically unstable. Oando's shares are also very thinly traded. On 31st May 2024, the company published its results for the 12 months to 31st December 2023, reporting a 71% increase in turnover and an after-tax profit of 74.4 billion naira. Borrowings fell 23% to $488.9 million. On 3rd April 2024, the company announced that trade in its shares had been suspended by the JSE pending the publication of its year-end results for 2022 and its interim results for 2023. The share price is now 9c, but it remains suspended.
JSE:OAO
by PDSnetSA
Our opinion on the current state of TRUSTCO(TTO)Trustco (TTO) is a financial services group operating out of Namibia and controlled by its CEO, Dr. Q. van Rooyen, who holds just over 50% of the shares. The company has three main areas of activity: (1) insurance & investments, (2) resources, and (3) banking/finance. In its results for the six months to 29th February 2024, the company reported a net asset value (NAV) of NAD128.2c compared with 117.1c in the previous period. The company said, "Group’s profit for the period was NAD 110 million, compared to losses of NAD 250 million in the previous corresponding period. NAD 130 million of the current period earnings are due to a debt restructuring concluded with a selection of Trustco’s international funders during the reporting period." This company is diversified both in terms of the various businesses it is in, but also geographically. Because it is controlled by van Rooyen, its activities can be difficult to predict. The share was suspended in November 2022 until 23rd March 2023 due to not publishing its financial statements. The volumes traded in the share have improved in recent months, but still only R40 000 worth of shares are changing hands on average each day, which adds to the share's risk.
JSE:TTO
by PDSnetSA
Our opinion on the current state of INSIMBI(ISB)Insimbi (ISB) is a group that manufactures and supplies specialist products to the industrial sector. They source, buy, package, and process ferrous and non-ferrous alloys, refractory and foundry materials, plastic blow-moulding, and injection moulding. They recycle metal alloys and provide technical support to users of their products. In its results for the year to 29th February 2024, the company reported revenue down 2% and headline earnings per share (HEPS) down 54%. The company said, "Prices for most of our commodities declined during the year. The impact on Insimbi's export and local revenue was partially mitigated by the US$ base pricing of these commodities and an exchange rate that worked in our favour." Technically, the share was in an upward trend until June 2018, but then fell to a low of 50c on 18-12-20. After that, it rose to a high of 139c in June 2023 before beginning a new downward trend. In our view, this company will benefit directly from any recovery of the South African economy, but it remains a risky commodity share. Its value traded is an average of about R60 000 per day, making it marginal for even a small investment by private investors.
JSE:ISB
by PDSnetSA
Our opinion on the current state of LEWIS(LEW)Lewis (LEW) is a retailer of furniture and electrical appliances operating through 807 stores under the Lewis (483 stores), Beares (137 stores), Best Home (144 stores), and most recently, United Furniture Outlets (43 stores) brands. Of these, 126 are in neighbouring countries. The company does 65.7% of its business on credit and offers customers credit insurance and other financial products. The company is exposed by the impact of COVID-19 because of its substantial debtors’ book which may be difficult to collect. The plan is to increase the number of UFO stores from 39 to 70 over the next few years. At current levels, the share is trading on a P:E of just 4.97 and the share price is well below its net asset value (NAV). The company's balance sheet remains debt-free, which is extraordinary among listed retailers in this post-COVID-19 period. The company is in the process of buying back 10% of its issued share capital. We have always said that this share represents a bargain. It will benefit directly from any increase in consumer spending. It is an extremely tightly managed company that has no debt and a huge store footprint. It has been growing both organically and by acquisition. Obviously, as a retailer of furniture and white goods, it is vulnerable to any economic downturn, but we see it as cheap right now and expect its share to rise as the economy improves. Certainly, it is one of the few retail outlets in South Africa that is doing reasonably well in the circumstances. The company is engaged in a share buy-back program in which it has so far bought back 29.9 million shares at an average price of R34.20 per share. In its results for the year to 31st March 2024, the company reported merchandise sales up 4.7% and headline earnings per share (HEPS) up 7.1%. The company said, "The strong credit sales growth trend continued, with credit sales increasing by 15.8% and cash sales declining by 11.8%. Credit sales have grown at a compound annual rate of 16.9% over the past three years and now account for 66.2% of total merchandise sales (2023: 59.9%). The group has maintained its prudent credit granting criteria in the constrained spending environment and the credit application decline rate increased to 35.1% (2023: 34.7%)." The modest results show that consumers are under pressure from high interest rates, but the end of load shedding should be a benefit. This share remains one of the best-run businesses on the JSE at the moment. The company believes that it is under-valued on the JSE by 30% - and we think that is conservative. Technically, the share has broken up through its downward trendline and is in a new upward trend.
JSE:LEW
by PDSnetSA
Our opinion on the current state of NEDBANK(NED)Nedbank (NED) is the smallest of South Africa's five big banks with a client base of just over 8 million. It has (10-10-18) separated from Old Mutual (which is busy selling its remaining stake). In its results for the year to 31st December 2023, the company reported revenue up 11% and headline earnings up by 11%. The company said, "In 2023 we further increased DHEPS to 3 199 cents, up 14% yoy, and we maintained our #1 NPS ranking among South African banks. Growth trends across average interest-earning banking assets (AIEBA) (+7%), net interest income (NII) (+14%), non-interest revenue (NIR) (+6%) and associate income (+64%) remained robust. Levels of productivity improved, evident in our cost-to-income ratio declining to 53.9% from 55.8% in 2022." At current levels, it is on a P:E of 6.9 with a dividend yield (DY) of 6.63% and looks like good value. In an update on the first 4 months to 30th April 2024, the company said, "The financial performance of the group in the first four months to 30 April 2024 compared to the first four months to 30 April 2023 ('the prior period') reflects headline earnings growth of around mid-single digits, supported by strong growth in Retail and Business Banking (RBB), albeit off a low base, and solid growth in Corporate and Investment Banking (CIB), partially offset by a decline in headline earnings in Nedbank Wealth and Nedbank African Regions (NAR)." Nedbank is extremely well-capitalised and is making good progress in managing costs and implementing technical improvements. The company is clearly benefiting from higher interest rates. Overall, we view this share as being a solid blue chip which is undervalued at current prices. Nedbank's share peaked at 31300 in March 2018 at the height of Ramaphoria. The share's price fell to 7320c in March 2020 and is now recovering from these levels in a steady upward trend which we expect to continue. On 22nd November 2023, the company announced that Jason Quinn would take over from Mike Brown as chief executive with effect from 31st May 2024.
JSE:NED
by PDSnetSA
Our opinion on the current state of FINBOND(FGL)Finbond (FGL) is a micro-lending and insurance operation which operates in South Africa and America. This company aims to expand in the US to the point where 70% to 80% of its income is derived from that country within 3 to 5 years. It already has 66% of its income coming from the US and believes that the US offers significant growth opportunities. Including South Africa, Finbond has a total of 694 branches. In its results for the year to 29th February 2024, the company reported revenue up 22.8% and headline earnings per share (HEPS) up 97.7%. The company said, "Profit for the year attributable to owners of the Company increased by 100.2% to R0.6 million (February 2023: loss of R274.8 million). Net asset value per share increased by 82.6% to 182.2 cents per share (February 2023: 99.8 cents per share)." Technically, the share was in a long-term downward trend and has been drifting sideways since March 2022. It trades about R229,000 worth of shares each day on average. We believe that there may be better options than this penny stock, but it has begun to move up recently.
JSE:FGL
by PDSnetSA
Our opinion on the current state of EOHEnterprise Outsourcing Holdings (EOH) was Africa's largest information technology company with involvement in almost every aspect of computer applications. At one point, the company had 11,000 staff members, but that has now been reduced to 6,151. It was, until August 2015, the darling of the JSE because it had a long track record of steadily improving profits. It made a peak of R178 per share at a P:E of 35. An unsuccessful attempt to exceed that high (i.e., a double top) came a year later in September 2016, and since then, the share has fallen steadily to reach a low of 146c in February 2023. This fall was initially accompanied by allegations that the company was involved in and owed its success to state capture in collaboration with the Guptas. The CEO and founder, Asher Bohbot, resigned in May of 2017 and handed over to Zunaid Mayet, who has now handed over to Stephen van Coller. Usually, when a company is run by a strong charismatic leader and that leader (like Bhobot) resigns, it is time to sell the share. The company's 200 subsidiaries have been consolidated into three divisions with centralised debt collection and procurement. On 6th July 2021, Business Day reported that EOH could possibly be "blacklisted" by the government as a result of its past tender frauds. This would obviously be very negative for the company. On 11th November 2022, the company announced a R500m rights issue and a R100m private placement mainly to reduce debt, and on 13th February 2023, it announced that the offer had been 135.8% over-subscribed. In its results for the six months to 31st January 2024, the company reported revenue of R3.1bn, slightly down on the previous period's R3.2bn. The company made a headline loss per share of 11c compared with a loss of 17c in the previous period. The company said, "Operating costs continue to be a core focus, and EOH is on track to eliminate at least R50 million from the FY2023 cost base, on an annualised basis, as part of the efficiency strategy. The Group's interest charge decreased to R68 million (HY2024) from R102 million (HY2023), as a result of the R600 million capital raise and the refinancing of consortium facilities with a single bank." On 31st May 2024, the company announced the resignation of various directors and the appointment of Marius de la Rey as interim CEO. Technically, the share is still falling as investors wait for the company to reduce debt and re-invent itself. To us, it looks like the EOH share may have consolidated at lower levels and now be in a new upward phase.
JSE:IOC
by PDSnetSA
Our opinion on the current state of DIS-CHEM(DCP)Dis-Chem Pharmacies (DCP) listed in November 2016 and competes directly with Clicks (CLS) in the pharmaceutical, medicine, and beauty products markets. It is a family business run by the Saltzman family, who had a controlling stake in the business through a private company, Ivlyn. On 24th August 2021, Ivlyn announced the sale of 7.5% of its shares in a bookbuild, 3.75% to selected management (with a 10-year lock-in) and 10.5% to a BEE consortium. This leaves the Saltzman family's interest at 31.4%. Ivan Saltzman was the CEO but has resigned and will be replaced by Rui Morais. Dischem's objective on listing was to expand its store base from 108 stores, which it has now far surpassed. Theoretically, Dischem can have a store in every shopping mall where Clicks has a store. Clicks had about six hundred stores when Dischem was listed and has spoken of plans to expand its store base to as many as 1200. This means that Dischem has considerable "blue sky" potential - which accounts for its relatively high rating (P:E of around 21.67). The company is buying Springbok Pharmacy and Quenets, which shows that it is growing rapidly. The company now has more than 254 pharmacies countrywide and is opening between 10 and 20 new stores a year. It may be possible for the company to expand into spaces left in malls as a result of COVID-19. These may be available for lower rentals. The company is benefiting from an increased awareness among customers of the need to boost their immunity and general health by buying more vitamins. On 15th May 2020, Dischem announced that it had acquired 100% of Baby City for R430m in a conditional agreement. There are significant synergies between the two companies' product and service ranges. The company is expanding into healthcare insurance with the acquisition of 25% of Kaelo Holdings. In its results for the year to 29th February 2024, the company reported revenue up 11.1% and headline earnings per share (HEPS) down 1.6%. The company said, "...the Group was impacted by the base effects of the prior year's performance, which were distinctly different across the two halves of the year with the first half of the prior year delivering a strong performance when compared to the second half of the prior year. Contributing to the stronger first half performance in the prior year, was the acquisitions of the warehouse properties resulting in a R72 million once-off gain from the release of the lease liability and right-of-use asset as well as the impact of COVID-19 vaccine administration and testing services which has ended and did not contribute in the current financial period." In our view, this is a solid blue-chip company with a good future. Technically, the share moved sideways and downward since making a "double top" in April 2022. We advised waiting for a break up through a 200-day moving average before investigating further. That break appeared to be happening on 3rd November 2023 at a price of 2525c per share. Since then, the share has moved up to 3128c. We consider Dischem to be a solid defensive share with good long-term potential.
JSE:DCP
by PDSnetSA
Our opinion on the current state of CROOKES(CKS)Crookes Brothers (CKS) is an agricultural and property company which was formed in 1913 and listed on the JSE in 1948. The company produces sugar cane, bananas, macadamia nuts, and deciduous fruit, and has a property division. The company owns Renshaw farm, which consists of 1800 hectares between Scottburgh and Umkomaas. Of this, 266 hectares has been re-zoned for development, of which 52 hectares is the subject of a contested land claim. The company has decided to sell the 28 hectares which is being developed as Renshaw Hills, a 500-unit residential development. The deciduous fruit operation consists of 5 farms in the Western Cape with 43 hectares of deciduous orchards. The macadamias are grown on a farm in Mozambique on a 99-year lease. The sugarcane operation is on 4 leased farms in Mpumalanga plus other farms in KwaZulu Natal, Swaziland, and Zambia. In its results for the six months to 30th September 2023, the company reported revenue up 17% and headline earnings per share (HEPS) of 321.2c compared with a loss of 193.7c in the previous period. The company said, "As anticipated, we are starting to experience a welcome reduction in fertiliser and other agricultural input costs, following the runaway cost inflation experienced in the past two years brought about by geo-political events beyond the group’s control. The reduction in the fair value of biological assets from continuing operations was R42.2 million (2022: reduction of R81.2 million)." In a trading statement for the year to 31st March 2024, the company estimated that HEPS would be 334.5c compared with a loss of 708.8c in the previous year. The company said, "The increase in earnings is mainly attributable to an improvement in prices in the Group's sugar cane and banana operations, as well as a reduction in fertilizer and other agricultural input costs, compared to the previous corresponding period." A problem with this share is that it is relatively tightly held. The average value of shares changing hands each day is about R102 000, but on many days it does not trade at all. This generally makes it riskier even for private investors.
JSE:CKS
by PDSnetSA
Our opinion on the current state of ADCORP(ADR)Adcorp (ADR) is an employment company with subsidiaries operating in South Africa and Australia. Managerially, efforts have been made in (1) defining and focusing on the core business, (2) reducing costs, (3) strengthening the brand, and (4) transforming the culture. In its results for the year to 29th February 2024, the company reported revenue from continuing operations up 7.7% and headline earnings per share (HEPS) of 83.8c compared with 61.1c in the previous year. The company said, "Persistent load shedding and other infrastructure issues in South Africa led companies to seek more flexible staffing solutions, thereby boosting demand for our services. The Australian market continues to grapple with blue-collar labour shortages, which in turn has driven demand for Adcorp's contingent staffing offering." Technically, the share has been drifting sideways and downwards for the past 40 months, although the prospect of a special dividend saw the share jump in late May 2023. Obviously, the high unemployment level in the economy had negatively impacted this business, and COVID-19 made the situation worse. It has suffered from the difficult conditions in the South African economy, but the new management team appears to be making the right moves. On a P:E of 6.05 and a dividend yield (DY) of 6.21, we believe that the share is cheap and has potential.
JSE:ADR
by PDSnetSA
Our opinion on the current state of AMEAfrican Media Entertainment (AME) is a company which specialises in running radio stations and whose revenue comes principally from advertising on those stations. It has four divisions - (1) Algoa which broadcasts from the Garden Route to the Wild Coast, (2) OFM which broadcasts in the Free State, North-West province, Northern Cape, Southern Gauteng and Northern Natal, (3) United Stations which sells and creates advertising material for the radio stations and (4) Radio Heads which offers media planning and buying, creative strategy and copy-writing and syndicated programming. AME acquired Moneyweb and a share of Classic FM. The company said, "On 30 September 2019 Classic FM South Africa (Pty) Ltd was placed under voluntary business rescue." In its results for the year to 31st March 2024 the company reported revenue up 8% and headline earnings per share (HEPS) up 63%. The company said, "The group generated cash from operating activities of R64,9 million (March 2023: R43,5 million), paid tax of R15,3 million (2023: R11,6 million), spent R5,4 million (2023: R6,3 million) on capital expenditure and paid dividends of R33 million (2023: R28,7 million) to its equity holders and non-controlling interest holders. The group also repurchased 212 600 shares (2023: 701 775 shares) during the period which resulted in a cash outflow of R6,9 million." The share trades an average of R111 000 per day on average which makes practical for a small investment. Its portfolio of radio stations have relatively small, specialised audiences. Moneyweb has battled for years to produce significant profits.
JSE:AME
by PDSnetSA
Our opinion on the current state of AFINE(ANI)Afine (ANI) is a real estate investment trust (REIT) formed in 2021, specializing in acquiring petrol stations. The company acquired five petrol stations in February 2021 and two more in May 2021. In its results for the year to 29th February 2024, the company reported revenue up 2.7% and headline earnings per share (HEPS) down 4.1%. The company said, "Afine’s balance sheet comprised assets of R408.2 million at year-end, consisting of 10 service stations valued at circa R397.8 million. This showed an increase of 11.6% over 2024. Operating profit before fair value adjustments and tax amounted to R38.9 million. Basic earnings were 94.70 cents per share, a very pleasing increase of 176.66% over the previous period. The growth can be attributed to a Fair Value Adjustment in investment property." Despite these financial results, the company has less than R1,000 worth of shares changing hands each day on average, which makes it completely impractical for private investors. The low trading volume indicates a lack of liquidity, which can pose significant risks for investors looking to enter or exit positions in the stock. Key Points for Investors: 1. Specialization in Petrol Stations: Afine focuses on acquiring petrol stations, providing a niche but potentially stable revenue stream. 2. Improving Financials: The company reported an increase in revenue and a significant increase in basic earnings per share due to fair value adjustments. 3. Low Trading Volume: The very low average trading volume makes the share impractical for private investors due to liquidity risks. 4. Balance Sheet: The balance sheet shows a healthy increase in assets, driven by the valuation of their petrol station investments. Conclusion: While Afine has shown improvement in its financial results and asset valuations, the extremely low trading volume makes it an impractical investment for private investors. The lack of liquidity poses a significant risk, as it can be difficult to buy or sell shares without impacting the share price. Investors should consider these factors and the niche nature of Afine's business before making any investment decisions.
JSE:ANI
by PDSnetSA