Long
Our opinion on the current state of SIRIUS(SRE)Sirius Real Estate (SRE) is a notable player in the real estate investment trust (REIT) sector, with a significant presence on both the Johannesburg Stock Exchange (JSE) and the London Stock Exchange (LSE). Specializing in office, manufacturing, and warehousing properties in Germany, Sirius manages a portfolio of 141 assets valued at approximately 2 billion euros. This positioning has made it an effective rand-hedge, particularly as it benefited from the German economic recovery prior to the COVID-19 pandemic.
An essential development for Sirius has been its joint venture (JV) with AXA Investment Managers. Named "Titanium," the JV saw AXA taking a majority stake of 65%, leaving Sirius with a 35% share. This partnership enhanced Sirius's asset base significantly by acquiring five business parks from Sirius for 168 million euros, a transaction representing a 19% premium on their book value. This strategic move is set to potentially double Sirius's asset value within the next two years, illustrating a proactive approach to growth and investment return.
For the six-month period ending 30th September 2023, Sirius reported a 9.3% increase in funds from operations and a 7% increase in rent roll in Germany, alongside a 9% increase in the UK. The company also noted a loan-to-value (LTV) ratio of 40.8%, maintaining strong leverage metrics. Management highlighted the continued demand for its high-quality, affordable properties, which has supported consistent rental growth—projecting a tenth consecutive year of greater than 5% like-for-like rent roll increases.
More recent financial updates for the year ending 31st March 2024 reflect a rental roll increase of 8.2% and an impressive cash collection rate of 98%. These figures underscore the strength of Sirius’s operations and its effective management of assets. Additionally, the company reported substantial free cash reserves of approximately 220 million euros as of the end of March 2024, further highlighting its financial health.
From a technical analysis perspective, after a period of decline, Sirius's shares demonstrated a significant turnaround with a breakout on 17th November 2022 when the stock price rose from 1622c. This upward trajectory continued, with the share price reaching 2260c. This performance suggests a positive market sentiment and a strong outlook for the company, supported by an earnings multiple of 14.52, which ranks it among the highest-valued REITs on the JSE.
In a further display of its aggressive expansion strategy, on 7th April 2024, Sirius announced acquisitions in Germany and the UK worth over 100 million euros. These acquisitions are likely to contribute to the company's growth trajectory and reinforce its position as a robust investment, especially for those seeking exposure to real estate markets outside of South Africa. The ongoing success of Sirius reflects its strategic initiatives and operational efficiency, making it a compelling option for investors looking for growth and stability in the REIT sector. Our opinion on the current state of AH-VEST(AHL)AH Vest, trading under the All-Joy brand, is a significant player in South Africa's condiment market, notably as the country's second-largest producer of tomato sauce. The company is actively expanding its product offerings into ready meals, soups, and canned vegetables, diversifying beyond its traditional sauce lines to capture a broader share of the food market.
For the six-month period ending 31st December 2023, AH Vest reported a modest revenue increase of 1.9%, alongside a substantial rise in headline earnings per share (HEPS) by 37%. This growth in earnings is particularly notable, suggesting improved operational efficiency or cost management. The company's net asset value (NAV) stood at 48.24c per share, indicating a stable financial position.
A significant development for AH Vest during this period was the installation of generators at its production facility. This investment was aimed at enhancing service levels, which increased from 80.8% in the previous year to 82.7%. Despite this improvement, the company noted that its service levels still lag behind the industry average. The need for increased working capital was highlighted as a pressing concern, impacting the business's overall performance as it seeks to maintain and expand its operational capabilities.
However, one of the main challenges facing AH Vest is its market liquidity. The share is virtually untraded on the Johannesburg Stock Exchange (JSE), presenting a significant barrier for private investors interested in the company. This lack of trading activity can make it difficult for investors to enter or exit positions, potentially leading to higher risks associated with price volatility when trades do occur.
Given the company's strategic expansion and the recent improvements in operational infrastructure, AH Vest appears to be positioning itself for future growth. However, the trading issues present a notable caveat for potential investors, emphasizing the need for careful consideration of market liquidity when evaluating investment opportunities in smaller or less actively traded companies. A
Our opinion on the current state of SHOPRITE(SHP)Shoprite, Africa's largest grocery retailer and consumer goods company, has navigated intense competitive pressures in the market, which has historically prevented supermarkets from significantly marking up prices due to price competition. The company's share price experienced a significant dip, falling from a high of R275 in March 2018 to around R100 in July 2020, primarily due to market conditions and internal challenges. However, it has since shown a robust recovery, indicating resilience and a potential for future growth, especially with any improvement in the South African economy.
The influence of Shoprite’s chair, Christo Wiese, remains notable despite his reduced stake in ordinary shares to just over 10%. He retains significant control through 265 million deferred shares, amounting to 42% control of the company. This dynamic suggests a continued strong influence in the company's strategic direction.
Shoprite has strategically streamlined its operations by exiting markets in Uganda, Madagascar, Nigeria, and Kenya, focusing on regions where it can leverage its strengths more effectively. This is complemented by its agreement to acquire 56 Cambridge and Rhino food stores from Massmart, enhancing its retail footprint and market penetration.
The global downturn due to the COVID-19 pandemic has set a challenging economic backdrop, but recovery in global economies, particularly the American market, is expected to spur economic improvement across Africa. This prospect bodes well for consumer spending, which is crucial for Shoprite's business model focused on volume-driven sales.
Recent unrest and looting had a significant impact, with 119 of its stores severely affected. Despite these setbacks, the company reported a 13.9% increase in merchandise sales and a 7.6% rise in headline earnings per share (HEPS) for the six months ending 31st December 2023. The company also expanded its physical presence, opening a net of 369 stores over the past 12 months, reflecting aggressive growth and confidence in its business model.
Shoprite's management highlighted that despite the high base from the previous year, the growth in sales from its core business segment was significant, with an additional R12.4 billion in customer spending compared to the same period last year. This performance notably outpaces the rest of the market growth in South Africa, underscoring Shoprite's competitive edge and operational efficiency.
Given the stock's current valuation, which remains more than 13% below its record high of 27632c set on 8th January 2024, Shoprite appears undervalued. The technical analysis further supports this optimism; the share broke above its 200-day moving average on 2nd September 2020, when it traded at 11696c. Over the subsequent 3.5 years, the share has appreciated by 136%, reflecting substantial growth and investment potential.
Overall, Shoprite continues to demonstrate its capacity to navigate market challenges, adapt to changing economic conditions, and capitalize on growth opportunities. This positions the retailer as an attractive investment, particularly for those betting on a recovery in the African retail sector and broader economic improvement post-pandemic. Our opinion on the current state of PURPLE(PPE)Purple Group (PPE) is a distinctive entity in the financial sector, specifically tailored for private investors and known for providing some of the lowest trading costs on the Johannesburg Stock Exchange (JSE). The company is segmented into three divisions: Easy Equities, Emperor Asset Management, and GT247.
**1. Easy Equities:** This platform is particularly innovative as it allows investors to purchase fractional shares with minimal transaction costs. For example, buying R100 worth of a share costs only 64c. This feature has attracted a significant number of first-time investors, with 95% of the accounts opened under this category, resulting in about 150,000 active investors.
**2. Emperor Asset Management:** This division manages funds on behalf of clients, leveraging expertise to deliver competitive investment returns.
**3. GT247:** This platform caters to more sophisticated investors interested in derivatives trading, rounding out Purple Group’s offerings to cover a broad spectrum of investment needs.
In May 2023, Purple Group undertook a rights issue to raise R105 million, supported by over 27% of its shareholders. This funding strategy offered shareholders an opportunity to buy additional shares at a substantial discount, specifically 81c per share, which was 31.87% below the volume-weighted average price as of mid-May 2023.
Financial performance for the fiscal year ending 31st August 2023 showed a marginal revenue increase of 0.8%, though the company reported a headline loss of 2.05c per share, a downturn from the previous year's profit of 1.12c. Despite this loss, the net asset value (NAV) saw a growth of 6.3% to 40.8c per share. Notably, the client base expanded by 17.5%, with institutional client inflows up by an impressive 169.9%, pushing the assets managed across Purple Group’s platforms to R14.5 billion.
For the six-month period ending on 29th February 2024, the company's trading statement projected an improvement in headline earnings per share (HEPS), estimating a range between 0.74c to 0.82c, which contrasts with a loss of 0.84c in the prior comparable period. This anticipated turnaround suggests a positive trajectory in operational performance.
The shares of Purple Group are actively traded, with an average daily trading volume of around R400,000. The stock experienced a “double top” formation around 340c in early 2022, followed by a decline until early March 2024. Since then, the shares have been on an upward trend. Following our analysis, we recommended monitoring the 65-day exponentially smoothed moving average, which indicated a buying signal on 4th March 2024 at 66c. The share price has since increased to 70c, indicating a potential recovery and offering a possible entry point for investors considering the stock's recent performance and growth prospects. Our opinion on the current state of MC-GROUP(MCG)MultiChoice Group (MCG) is a major player in the African entertainment landscape and ranks among the world’s fastest-growing pay-TV providers, boasting 21.1 million subscribers across 50 countries. The subscriber demographics split with 42% (8.9 million) located in South Africa and the remaining 58% (12.2 million) spread across the rest of Africa. Since its spin-off from Naspers and subsequent listing on the Johannesburg Stock Exchange on 27th February 2019, MultiChoice has positioned itself as an attractive investment, particularly due to its reliable annuity income derived from debit orders across a diverse customer base.
The company operates with minimal working capital, typical of service companies, which negates the need for large stock inventories. Despite its streamlined operations, MultiChoice has faced union challenges historically, although it does not employ a large unskilled or semi-skilled workforce. The potential for pay-TV growth in Africa is significant, though future challenges may arise from advancements in 5G internet technology and the availability of free online content, which could erode traditional pay-TV’s market share. Additionally, regulatory changes by the Independent Communications Authority of South Africa (Icasa) aimed at increasing competition could impact MultiChoice’s dominance, particularly in sports coverage, which is a major draw for the service.
The COVID-19 pandemic initially boosted the home entertainment sector, aiding MultiChoice’s business. On 2nd March 2023, the company enhanced its competitive edge by partnering with Sky News and NBC Universal to bolster its Showmax service, aiming to dominate the African market. However, the first half of the financial year up to 30th September 2023 saw a slight decline in revenue by 1% and headline earnings per share (HEPS) by 5%. The overall 90-day active subscriber base saw a contraction of 2%, although the Rest of Africa base experienced a modest growth of 1%. The South African operations were notably affected by extensive power outages, impacting nearly half of the days in the reporting period.
On the corporate front, significant developments include Canal+'s increased stake in MultiChoice, which as of early 2024 triggered a series of mandatory takeover bids, initially deemed too low by MultiChoice but subsequently raised to a more acceptable R125 per share. By April 2024, Canal+ had acquired a 40.01% share, leading to necessary regulatory filings with the Takeover Regulation Panel and the Companies and Intellectual Property Commission.
From a technical standpoint, MultiChoice’s share price has been on a downward trend since March 2023 but experienced a rebound after breaking through the 65-day exponential moving average on 19th December 2023 at a price of 7440c. The share price has since climbed to 11750c, illustrating a significant recovery. MultiChoice remains a solid blue-chip stock, albeit with some exposure to the volatile dynamics of competitive products and regulatory changes. This investment scenario suggests that while risks exist, the company's strategic initiatives and market adaptations could continue to provide substantial value to investors. M
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Our opinion on the current state of SIBANYE-S(SSW)Sibanye is a prominent mining house that has been aggressively expanding its portfolio, acquiring platinum and gold mines in South Africa and the United States, and is now diversifying into base metals and minerals, particularly those essential for green technologies. The company, under the leadership of Neal Froneman, known for his robust expertise and experience in the mining industry, is on a mission to double its size before his planned retirement around 2024/5.
Sibanye has shown interest in crucial minerals for electric vehicle batteries, such as vanadium, copper, nickel, and lithium, aligning its operations with future market demands. Notably, on 1st June 2021, Sibanye announced a share buy-back program to repurchase up to 5% of its issued shares. Further solidifying its position in the lithium market, it increased its stake in Keliber, a Finnish lithium producer, to 80% on 30th June 2022, for about R7.7 billion. Additionally, the acquisition of Reldan, a US-based metals recycler, for $211.5 million on 9th November 2023, underscores its strategic expansion into recycling essential metals.
Despite these strategic moves, Sibanye has faced challenges, including a significant share price drop, which has been viewed by the company’s leadership as a buying opportunity. Froneman has expressed that the shares are undervalued, a sentiment supported by their aggressive expansion and diversification strategy. However, the volatile prices of the metals they extract remain a pivotal factor in the company's financial health.
In the latter part of 2023, Sibanye initiated Section 189 consultations to retrench 4095 employees, reflecting ongoing restructuring efforts within the company. Moreover, it secured a five-year deal with AMCU at its Kroondal PGM operation on 6th November 2023, ensuring a minimum 6% annual wage increase. In a move to bolster its finances, Sibanye announced on 21st November 2023 the issuance of a $500 million convertible bond, although this led to a 20% drop in the share price as some investors exited their positions.
For the year ending 31st December 2023, Sibanye reported an 18% decrease in revenue and a significant loss of R37.4 billion. Despite these figures, Froneman remains optimistic about the non-structural nature of the PGM price weakness and anticipates a recovery based on favorable demand indicators.
As of 11th April 2024, further restructuring was announced with Section 189 inquiries for the retrenchment of 3107 employees and around 900 contractors in its gold mines, indicating continued challenges in maintaining operational efficiency.
Technically, Sibanye’s shares have been in a downward trend since March 2022, primarily due to falling commodity prices. However, an upward trend break on 2nd April 2024 at 2230c suggested a potential turnaround, with the share price subsequently rising to 2495c. Despite this recent uplift, the stock remains a volatile investment tied closely to the fluctuations of commodity markets. Our opinion on the current state of NUWORLD(NWL)NuWorld, a company established on the JSE since 1987, operates as an importer and exporter of consumer goods, focusing primarily on consumer electronics, appliances, and durables. The company's product lineup includes well-known brands like Telefunken and JVC, alongside a variety of items such as vacuum cleaners, fans, large and small appliances, cell phones, heaters, and liquor. Over the years, NuWorld has maintained a consistent track record of generating profits and distributing dividends, illustrating its stability in the industry.
Despite its long-standing presence and profitability, the share is relatively thinly traded, with several days often passing without any trading activity. This characteristic renders the stock less suitable for private investors who might seek more liquidity. In the latest financial results for the six-month period ending on 29th February 2024, NuWorld reported a slight decline in revenue by 2.8% and a decrease in headline earnings per share (HEPS) by 5%. However, it's not all downward trends for the company; the net asset value (NAV) saw a positive increase of 4.8% to 7258.3c per share.
The company highlighted several challenges affecting its local sales, including high interest rates, increased shipping costs, the devaluation of the South African Rand, load shedding, and rising fuel costs. However, it also noted a silver lining with its international sales, which demonstrated a 6.6% growth in turnover during the same period. This indicates that while NuWorld faces significant headwinds domestically, its international operations are contributing positively to the overall business.
Technically, the trading pattern of NuWorld shares reflects the company's low liquidity, with the share price having declined since March 2022. Nonetheless, there are indications of a potential recovery, suggesting that despite the current challenges, there may be opportunities for the stock to regain some ground. Investors interested in NuWorld would need to consider the low trading volume and potential for sporadic price movements, balanced against the company's long-standing history of profitability and resilience in a fluctuating market. Our opinion on the current state of TRANSCAP(TCP)Transaction Capital (TCP) is a diversified company that operates three divisions: minibus taxis, risk services, and holds a 75% stake in WeBuyCars (WBC). Its subsidiary, SA Taxi, dominates the value chain of the minibus taxi industry in South Africa, handling financing, repairs, insurance, and sales. Since its listing in June 2012, TCP experienced a significant compound annual growth in earnings per share of 21% from 2014 until an abrupt halt in 2023 due to a R1.8 billion provision for bad debts in the minibus taxi division.
The minibus taxi industry is crucial in South Africa, with 69% of households relying on taxis for more than 15 million trips daily. These trips are mostly non-discretionary, which typically shields the industry from economic downturns. However, recent challenges such as rising interest rates, increased fuel costs, and decreased consumer spending have led to a perfect storm, significantly impacting TCP’s finances. The average taxi owner struggled with repayments around R6000 per month amidst these rising costs, leading to SA Taxi reducing its new vehicle financing and focusing on selling refurbished taxis.
In 2018, the South African Taxi Council (Santaco) acquired a 25% stake in SA Taxi for R1.7 billion, which has been mutually beneficial. Yet, the company’s broader financial health has been shaken, as evidenced by the considerable bad debt provisions and a reported headline loss of R3.7 billion for the year to 30th September 2023. This loss included a R1.1 billion write-down of repossessed taxis. The future of SA Taxi hinges on renegotiating terms with its debt funders, expected by March 2024.
On the corporate front, significant shareholder changes occurred with Coronation increasing its stake to 16.57% in March 2023, and the Hurwitz family trust selling 1.6 million shares in December 2022, which preceded a sharp decline in share price. Additionally, CEO David Hurwitz announced his resignation effective 31st December 2023, further impacting the company's share price.
In response to the ongoing challenges in the taxi division, TCP announced a strategic shift in January 2024 to unbundle and separately list WeBuyCars. This decision followed the poor performance in the taxi business throughout 2023. Following the unbundling, WeBuyCars demonstrated a positive trajectory with a 16% increase in revenue and a 20% rise in core earnings over four months, indicating potential as a solid standalone entity on the JSE.
Further reshaping its portfolio, TCP sold its holding in Nutun Australia for A$58.3 million in March 2023. As of April 2024, following the separate listing of WeBuyCars, the TCP share price adjusted to 361c, reflecting the market’s reaction to the restructuring.
This array of strategic moves and market challenges paints a complex picture for TCP. While the company faces significant hurdles, the strategic divestiture and focus on potentially more profitable segments like WeBuyCars could provide a foundation for recovery and future growth, presenting what could be an appealing investment opportunity at current valuations. 
Long
