Vunani results to reflect sharp increase in earnings
By Staff Writer
Pan-African financial services group Vunani anticipates that it will report headline earnings per share of between 18.6c and 19.8c for the 12 months ended February this year‚ which is an increase of between 221% and 241% on the 5.8c reported for the prior reporting period which was for 14 months.
In a trading update on Friday‚ Vunani said the increase was primarily attributable to the improved performance of the group over the 12-month period.
New Altron CEO sets restructuring plan in action
Allied Electronics (Altron) has entered a new era — one in which it has pinned its hopes on changes that might renew investor interest in the 51-year-old company.
After only three weeks at the helm, CEO Mteto Nyati has introduced a raft of changes, charting a new direction for the electronics, technology and telecoms conglomerate.
Nyati, who replaced scion Robbie Venter, has announced changes to the executive committee to create a “leaner group structure that is aligned” with its ICT ambitions. He has added executives leading human capital, shared services, marketing and the Altech Netstar operation to the executive committee. The group executives for corporate finance, strategy & technology and corporate affairs, and the operations executive for telecoms, multimedia & electronics and technology have been removed from the committee.
“Our priorities as a group are to aggressively drive cost efficiencies; recruit, develop and retain top talent; build a trusted ICT brand; and accelerate growth,” says Nyati. “The new structure reflects these priorities while setting the tone across the group on cost focus.”
The appointment of Nyati was largely welcomed by the industry, with punters saying the former MTN SA CEO would bring new ideas to the group.
Altron was founded by Bill Venter who, with his sons, successfully built the business into one of the biggest electronics groups in the country. In its heyday, Altron had more than 40 companies under its operations, spanning Europe and Africa.
Last year, the family ceded control and operational management of the group. This followed a series of huge losses as a result of a failed venture into East Africa, and poor performance from some of its manufacturing and telecoms businesses.
The group also sold noncore and nonperforming assets to focus on the technology and selected telecoms businesses.
Kaplan Equity Analysts MD Irnest Kaplan says there could be renewed investor appetite for Altron.
“There is still a lot of hope,” says Kaplan.
Altron will have to report good sets of results for at least two periods before investors and the market can regain interest in the company, he says.
The company is focusing on the Bytes group of companies, which provides a range of software and hardware products to corporates, and a few telecoms businesses, including car tracking business Altech Netstar.
Kaplan says these businesses offer services that are in demand. “IT services will always be in demand. The only problem is if the economy doesn’t do well for the next two to three years, then corporates could cut down spend.”
Cratos Capital portfolio manager Ron Klipin says though the share price has shown some positive movements in recent weeks, there is still a lot of work ahead for new management and shareholders.
“We are waiting for the next set of results and any additional news on the restructuring. In addition, we need to see whether the new management is able to deliver,” he says.
Altron has already showed a slight improvement in its 2017 half-year financial results on the back of restructuring some of its operations and improved performance from core technology businesses.
Klipin says he hopes Altron’s full-yearperformance will be “fairly clean”, as there should not be any large-scale recurringcharges or impairments, “as these have already been absorbed in previous accounting periods.
“This will give a better idea of the sustainability of the business.”
Source:Financial MailDate: 2017/04/21
Oceana sinks more than 3% after warning of decline
By Robert Laing
Fishing group Oceana’s share price fell 3.3% to R98.86 on Friday after it warned shareholders it expected to report an up to 18% drop in interim earnings.
Oceana said its results for the six months to end-March scheduled for release on May 18 were expected to show headline earnings per share (HEPS) fell between 15% and 18% from the matching period’s 230.8c.
Betting the wrong way on the rand accounted for 14% of the drop in HEPS‚ but the group also suffered from a fall in canned fish sales blamed on “timing of buy-in effects ahead of price increases”.
Another division‚ Commercial Cold Storage Logistics‚ experienced a drop in Gauteng business.
“The expected decrease is attributable primarily to losses on foreign-exchange contracts held to cover the import of frozen fish. During the period‚ the estimated aggregate foreign-exchange loss is R44.7m compared to an aggregate foreign-exchange gain of R69.9m in the comparative period‚” Oceana said in the trading statement.
Best capitalised of all
African Bank, which had its credit outlook revised from negative to stable by S&P Global Ratings this week, is SA’s bestcapitalised bank, according to the ratings agency.
African Bank’s strong capital position and stable outlook demonstrates the bank’s turnaround following a 20month curatorship and subsequent relaunch in April 2016.
The bank’s risk-adjusted capital ratio was expected to remain above 20%, making it the best-capitalised bank in the country, S&P said.
This was appropriate for the higher level of risk to which it was exposed as a result of its unsecured retail loan book. The Reserve Bank placed it in curatorship in August 2014 after it collapsed under bad debt and needed a R10bn capital injection from the private sector to keep its performing debt book afloat.
It has separated from former parent African Bank Investments Limited (Abil), which resumed trading on the JSE in February as African Phoenix.
Under the leadership of Brian Riley, African Bank is now diversifying into insurance and investments, with plans to launch a transactional banking product later this year.
S&P affirmed African Bank’s B+ global-scale rating, which places it four notches below investment grade. Its local-scale rating was raised from BB- to BB, placing it two notches below investment grade.
The revision to African Bank’s outlook and upgraded national-scale rating reflected better-than-expected earnings and an improvement in capitalisation because of a reduced balance sheet, S&P said.
The bank had a loan book of about R30bn in January, down from Abil’s precuratorship peak of around R60bn.
For the five months to the end of September 2016, African Bank reported profit after tax of R269m, which was particularly pleasing considering that it had forecast a loss of R280m.
African Bank’s risk position, however, remained weak, S&P said, reflecting its focus on unsecured consumer loans, which led to greater losses.
Impairment charges and write-downs were expected to be about 11% and 10% of its gross loan book over the next few years. These could worsen in the event of a spike in inflation or unemployment, but this was not S&P’s base case scenario.
While African Bank had strong levels of liquidity and limited medium-term refinancing risks, low investor confidence could threaten the bank’s wholesale-funded balance sheet in the longer term, said S&P.
A positive ratings action would require an improvement in the funding profile of the bank and evidence that actions to diversify the business model were taking shape. The S&P announcement was a “directional improvement for African Bank debt”, said Gavin Jones, African Bank’s head of treasury.
African Bank will report interim results for the six months to March 31 on May 23.
Source:Business DayDate: 2017/04/21
Dispute threatens rescue of Stuttafords
A dispute has erupted between Stuttafords and Ellerine Bros, which could bring the former’s business-rescue plans to an unseemly end.
In March, creditors approved a proposal by Ellerines to inject R12m into the failing retailer for a 76% interest. Ellerines would subscribe to 600,000 shares in the company at a price of R20 per share.
However, Ellerines appears to have had a change of heart, which could prohibit or delay the implementation of the plan.
In a blistering exchange of attorney’s letters seen by Business Day, business-rescue practitioners John Evans and Neil Miller requested Ellerines to indicate whether it still intended to pay the R12m.
Ellerines responded that it was under no obligation to pay the amount because Stuttafords had not met key terms for the deal, including agreeing on terms with landlords for continued tenancy and obtaining a new loan facility from Nedbank.
In the attorneys’ letter, Ellerines denied any obligation to assist Stuttafords to achieve substantial implementation of the plan. Ellerines said it believed the plan would fail.
In response, the business rescuers warned that Ellerines’s conduct would have profound consequences for Stuttafords and all affected parties that were “promised a successful outcome and rescue”. They said employees and creditors would be left “high and dry” and the rescue of Stuttafords lay within Ellerines’s ability and power.
The business-rescue practitioners have convened an urgent meeting of creditors for April 26. On Thursday, they urged creditors to attend the meeting to discuss the prospect of achieving substantial implementation and its effect on the business rehabilitation of the company.
Stuttafords placed itself into voluntary business rescue in October 2016.
The chain has eight department stores and 15 monobrand stores across SA. The group employs 950 people.
Stuttafords’ outstanding debt is about R836m. Of this amount, it owes Nedbank R147m.
Other creditors include Estée Lauder, which is owed R53.8m, Tommy Hilfiger (R14.6m) and L’Oreal (R13.5m).
Source:Business DayDate: 2017/04/21
Massmart sales signal slump
Consumers spent less in Massmart’s comparable stores in the first quarter of 2017, a trend that could continue into the rest of the year due to the constrained economic environment.
In the 13 weeks to March 26 total sales growth was 0.5% compared with the year-earlier period, Massmart said in its integrated annual report. Like-forlike sales decreased 1.7%.
Massmart said that given its large wholesale businesses, the group’s sales performance in the period was adversely affected by Easter falling in April 2017 compared with March of 2016.
The group noted that its integrated report was finalised a day after President Jacob Zuma reshuffled his cabinet.
“This development may increase policy uncertainty in SA, potentially with negative consequences for the economy, and thus it is extremely difficult currently to provide any useful short- to medium-term economic or performance outlook,” the group said.
The picture was especially dismal outside SA.
Africa’s second-largest distributor of consumer goods reported a 17.4% drop in sales in rand terms while comparable sales fell 19.4%.
Even though the continent is facing challenges, the group said it remained optimistic about the long-term growth opportunities across selected African countries and expected to open 11 new stores in the region from 2017 to 2018.
“Despite … economic headwinds facing sub-Saharan Africa … the major regions of south, west and east Africa are forecast to grow ahead of South African economic growth,” Massmart said.
According to the World Bank, growth in the sub-Saharan Africa region slowed to 1.5% in 2016. The bank said the risk outlook weighed heavily to the downside due to heightened policy uncertainty in the US and Europe and continued weakness in commodity prices.
Other revelations from the integrated report included CEO Guy Hayward’s pay.
In 2016, Hayward took home R13m through a guaranteed package, other benefits and short-term incentives.
Source:Business DayDate: 2017/04/21
Trematon profit up 276% after deals
Trematon Capital Investments has boosted its profit significantly following the conclusion of several deals in the six months to February.
The investment holding company reported a profit for the six months to February 2017 of R104.48m, about 276% higher than the R27.8m profit in the six months to February 2016.
Trematon is celebrating its 20th year as a JSE-listed company this year. It invests in assets and operating businesses which management believes will have the potential to generate an internal rate of return of 20% or greater over time.
The company’s operations are not limited to a specific commercial area but strongly focused on property-related investments, especially in the Western Cape, according to CEO Arnold Shapiro. It also invests in an education business called Generation Education and owns part of the Club Mykonos resort.
Gross assets grew to R1.36bn from R1.19bn at year end. Further property acquisitions worth R614.1m had not yet been transferred at the reporting date.
“We have made careful material investments in the past 18 months. This includes the deal we made with Redefine Properties where we bought seven assets for R614m and substantially increased the size of our real estate subsidiary, ARIA Property Group.
“The properties are in the process of being transferred and will be included in the accounts at our year end, being August 31 2017,” said Shapiro.
Trematon also sold out of part of the Club Mykonos resort investment at Langebaan during the period.
“Since 2008 Club Mykonos has been a major component of the group’s net asset value and has delivered good growth, but the value extraction process for the existing assets has run its course and the focus will now shift to development of the remaining land,” said Shapiro.
Anthony Clark, Vunani Securities’ financial and industrial small- and medium-marketcap analyst, said Trematon would have a net asset value of R2bn once all of its recent deals were completed. The group had long-term growth potential and was run by a strong team.
Source:Business DayDate: 2017/04/21
Troubled Trencor warns of hefty loss
Just 24 hours after a warning that it faces suspension from the JSE, container group Trencor has released a trading statement alerting shareholders to a hefty loss for the 12 months December 2016. The loss a share is expected to be as high as 992c.
On Thursday, Trencor, one of the world’s largest containerleasing groups, said poor economic conditions in the global container industry during 2016 and the bankruptcy of Hanjin Shipping, a large client, had a materially detrimental effect on its results.
This was exacerbated by International Financial Reporting Standard (IFRS) requirements. These forced Trencor to charge additional depreciation on its fleet of 2.5-million containers.
The expected 992c loss a share in 2016 compares with a loss of 43c in financial 2015.
On Wednesday, the JSE issued a statement advising investors that Trencor had failed to submit its provisional results within the three-months stipulated in the JSE’s listings requirements. If it failed to submit these by the end of April “its listing will be suspended”.
The company issued a Sens statement in response, saying it was not in a position to publish its provisional results “due to the onerous and time-consuming exercise in converting to IFRS the US GAAP-compliant results of Textainer Group Holdings in which Trencor has a 48% beneficiary interest”.
Group CEO Jimmy McQueen said the company expected to release the reviewed results next week.
He explained the source of the problem was that the two accounting systems (IFRS and US GAAP) treated “resale value” differently.
This difference became particularly onerous after the decline in market conditions during financial 2015.
The directors’ report of that year refers to the reporting challenge, particularly in the area of impairment testing and residual values of the container fleets.
“The complex and time-consuming calculations required to make the necessary IFRS adjustments ... for the large owned container fleets resulted in a delay in the issuance of these results and may continue to do so in the future,” the directors said in 2015.
“The complex and time-consuming calculations required to make the necessary IFRS adjustments, at each reporting period, for the large owned container fleets resulted in a delay in the issuance of these results and may continue to do so in the future,” the directors said in 2015.
In October 2016 Trencor was also warned it could be suspended because of late publication of its interim results.
McQueen, who is due to retire in June, said the company was developing a new system to help them deal with the conversion challenge.
The Trencor share price closed marginally weaker at R39.86 on Thursday. It is currently significantly off its 12-month low of R26 reached at the end of December. firstname.lastname@example.org
Source:Business DayDate: 2017/04/21
Net1 investor's principles queried
Corruption Watch, which is taking legal action against the South African Social Security Agency (Sassa) about its contract with Net1, has queried the International Finance Corporation’s (IFC’s) apparent disregard of its own standards with privatesector investments.
The IFC, which is part of the World Bank Group and invests in private companies across the world, is the single largest investor in Net1.
Unlike Allan Gray, which has been subjected to criticism in SA, the IFC has maintained a low profile in the controversy.
In stark contrast to Allan Gray’s engagements, the IFC has demonstrated no urgency in tackling the matter. Earlier this month it said it was pushing Net1 to complete an internal investigation into its lending practices. It also wants a third party to certify Net1’s as a responsible lender. “In light of what we have seen and what we are hearing in public, we are pressing harder. It should happen this year,” Andi Dervishi, IFC global head of financial technology investments, said at the time.
The IFC, which says its mission is to fight poverty with passion and professionalism, acquired an 18% stake in Net1 in April 2016.
It described Net1’s recent board changes as “a positive step” and said it would continue to make its voice heard and exert influence on Net1’s board to promote robust management, good lending practices and governance and transparency.
Corruption Watch executive director David Lewis said although the IFC was using public money to invest in Net1, it seemed unconcerned about enforcing governance standards on its investee companies.
“The World Bank is extremely robust in defending itself from malfeasance around its own service providers. Why is the IFC not applying the same standards?” he said.
Corruption Watch was encouraged by Allan Gray’s engagement but disappointed about its limited influence, Lewis said. “Welcoming the split in the roles of chairman and CEO seems rather lame given that it is merely confirmation of the most basic of good corporate governance practices, regardless of US tolerance for it.”
Allan Gray chief investment officer Andrew Lapping told nongovernmental organisation Equal Education that with the benefit of hindsight, and given the allegations and Net1’s business model, it would prefer not to have invested in Net1.
“That said, as a shareholder we have some influence to hold Net1 accountable and this is what we remain committed to doing,” he said.
Net1 had agreed to improvements on its contract with Sassa, such as deleting the optin functionality.
Net1 would not comment on Equal Education’s statements, but said it would be tackling “all these matters in an update, which we will be making by the end of the week”.
The IFC did not respond to requests for comment.
Source:Business DayDate: 2017/04/21
Black Empowerment Foundation lays criminal charges against Citibank
By Nathi Olifant
Criminal charges have been laid against Citibank for its role in the “corrupt and collusive actions” relating to the foreign-exchange fixing scandal currently being investigated by the Competition Commission.
The charges were laid by the Black Empowerment Foundation (BEF) at the Point Police Station in Durban‚ on Thursday morning. The BEF said the banks generated profits and earnings at the expense of South Africans.
The foundation also called for the National Prosecuting Authority to expedite the case‚ saying it would write to President Jacob Zuma to urge him to establish a commission of inquiry into the forex manipulation scandal. The original complaint accused 11 banks‚ including Absa‚ Investec and Citibank‚ of co-ordinating trading times from at least 2010.
The criminal charges come as the Competition Commission added new complaints this week against 18 banking entities‚ outlining further offences that Standard New York and the Bank of America allegedly committed while rigging the rand-dollar exchange market.
In an affidavit signed on March 31‚ commission inspector Mfundo Ngobese said the authority had become aware of “other collusive conduct” in addition to that described in its initial complaint against the entities. These included Absa‚ Investec‚ Standard Bank and Standard Bank securities subsidiary Standard New York.
During a media briefing at the Hilton Hotel following the laying of criminal charges‚ executive members of BEF‚ Ryan Bettridge‚ Zola Qoboshiyane and Bheki Shezi‚ said they were hopeful the matter will be taken up by law enforcement authorities.
They said BEF was a civil society organisation with objectives that were relevant to ensuring black economic emancipation and true radical economic transformation‚ according to its mandate and constitution.
“We are obliged to institute action with regard to issues that are in the interests of the unmasking and exposing of corporate ulterior motives‚ as well as educating broader society with regard to the economy and the effects of corruption‚” Qoboshiyane said.
“As the BEF it is our considered view that poverty is root cause of social ills and social instability. Millions of people remain oppressed economically and are condemned to poverty and underdevelopment with no chance of escaping. There are companies and financial institutions in particular that continue to commit economic crime with no consequences‚” Bettridge said.
He said their actions were a public statement on what the BEF intended to do to deal with economic crime.
“We wish to announce today that on behalf of the citizens of SA‚ we have laid criminal charges against the executives and management of CitiBank. This is for their involvement in the corrupt and collusive action for the forex manipulation scandal which is currently being investigated by the Competition Commission‚” he said.
Bettridge said a criminal investigation into the collusive and criminal acts of racketeering should be conducted‚ in contrast to a civil resolution being finalised by the Competition Tribunal.
In February‚ Citibank filed a settlement submission with the Competition Tribunal‚ something Bettridge said was a consent order and admission of guilt‚ in return for information and proof that that would implicate the others.
“SA law is not selective‚ it is impartial … the banks monopoly is held accountable for crimes against South Africans‚” he said.
Trencor expects to swing into full-year loss
Trencor expects to swing into full-year lossTrencor expects to swing into full-year loss.
Investment holding group Trencor expects to report a headline loss per share in the year to December of between R4 and R4.60 from headline earnings of R5.13 a year ago.
In a trading update on Thursday‚ the JSE-listed group attributed the expected loss to poor conditions in the global container industry and the bankruptcy of Hanjin Shipping Co.
Trencor owns 48% of US shipping container leasing group Textainer.
The trading statement comes three months after the company announced the retirement of chief executive Jimmy McQueen‚ after 40 years with the group.
The share price was marginally lower at R40 in late trade on the JSE‚ giving Trencor a market value of about R7bn.
S&P upfrades African Bank's rand-denominated bonds
By Robert Laing
African Bank‚ the “good bank” salvaged from African Bank Investments Limited (Abil)‚ had the rating of its rand-denominated bonds upgraded to BB from BB- and its outlook raised to stable from negative by S&P Global Ratings on Wednesday night.
African Bank’s foreign-denominated bond rating was affirmed at B+/B‚ also with the improved stable outlook.
The bank‚ which was separated from Abil and its not part of the renamed African Phoenix‚ which resumed trading on the JSE in February‚ had markedly improved its capitalisation and had a significantly stronger balance sheet‚ S&P said.
But the credit rating agency’s note listed a number of problems African Bank still faced after coming out of business rescue.
“African Bank has a diminished franchise‚ resulting from the failure of its predecessor and a monoline business model that compares unfavourably with that of domestic banking sector peers. Management is attempting to diversify revenues (and funding) and produce greater underlying initiatives by improving its product offering to its clientele and establishing long-term commercial partnerships‚” S&P said.
The ratings agency warned its outlook on African Bank could revert back to negative if SA’s “economic or credit environment weakens‚ possibly through increased unemployment‚ higher inflation and interest rates‚ or deteriorating rule of law and corruption”.
Sibanye could use streaming to raise funds
Sibanye Gold is considering a financing option that has been around for a decade but is little used by South African mining companies, particularly those stung by hedging or selling forward their gold production in the past.
While different from hedging, which entails selling future production at an agreed price, streaming has its proponents and its detractors.
Streaming entails an upfront payment, almost a deposit, from a streaming company for future, heavily discounted deliveries of a set amount of physical metal, generally a by-product of the mining process. These contracts may run for the life of the mine.
Local analysts describe the financing option as a largely North American one and a scheme that is not well understood or liked locally, as it tends to impart too much value to the streaming company.
Sibanye spokesman James Wellsted says the difference in multiples stems from the fact that streaming companies have no operational costs or risks that are associated with mining companies and that streaming offers a relatively cheap, offbalance sheet, nondilutive option when it comes to raising finance when compared with debt or issuing equity.
Sibanye is buying US-based Stillwater Mining, a palladium and platinum producer, for 2.2bn. To pay for the transaction and to fund the 550m early settlement of a Stillwater convertible bond, Sibanye has secured bridging finance of $2.65bn from a consortium of financial institutions, which it will repay as soon as it can.
Sibanye has said it will issue 1bn worth of shares and $1bn worth of straight corporate bonds to secure $2bn before the end of June.
It needs to raise a further 500m before the end of 2017 and for this, it is considering streaming, a convertible bond, bank debt or a rights issue. There is more than $300m of cash in Stillwater to offset the bond buyback.
If there is a streaming deal, it would be put in place overa portion of the platinum output from Stillwater, where palladium is the primary source of production and revenue, Wellsted says.
Harmony Gold, which jumped at the chance in 2016 to hedge 20% of its gold output for two years at R682,000/kg, well above the prevailing R548,600/kg price, will not consider streaming.
“Harmony hedges, which equals cash certainty. Streaming equals a form of debt. So, no, we will not consider streaming,” says spokeswoman Marian van der Walt, when asked if Harmony would consider it as a funding mechanism for its multibillion- rand Golpu copper and gold project in Papua New Guinea.
Gold Fields CEO Nick Holland has steadfastly said the company would not hedge its production, but the miner, with operations on three continents, could consider streaming.
“We would not use streaming at this stage as it is a relatively expensive form of financing,” the company said on Wednesday.
“We have access to the more traditional markets. Interest rates are still very low and we have a good debt rating.
“Also, we have sufficient facilities in place to cover our funding needs. We would view streaming as a financing option of last resort,” Gold Fields said.
AngloGold Ashanti falls into the Harmony camp of thought regarding streaming, with management’s feelingstowards the option fairlyclosely aligned to an analyst who derided it when Sibanye said on Tuesday that streaming was under consideration.
“Streaming is nothing good,” said the analyst, who declined to be named for company policy reasons.
“Ask any gold company that has done a streaming deal over the past 10 years and just look at the ratings of the streaming companies relative to thegold producers to see where the value of those deals lies,” the analyst said.
On the Mining Prospects website, Roger Taplin and Patrick Deutscher say: “Metal streaming transactions are an adaptable and evolving financing alternative by which a cash-strapped mining company may receive a capital injection without sacrificing control over operations or compromising shareholder equity.”
METAL STREAMING TRANSACTIONS ARE AN ADAPTABLE AND EVOLVING FINANCING ALTERNATIVE
The amount Sibanye Gold is paying for US-based Stillwater Mining, a palladium and platinum producer. It needs to raise a further 500m before the end of 2017.
Source:Business DayDate: 2017/04/20
Mastercard introduces biometric shopping card
Mastercard has launched a biometric card that uses fingerprints to enable purchases, revealing that it had been piloting the card, a global first for the company, in SA.
“When we heard about the innovation at a global level, we thought it would be relevant to our customers here. There is also an understanding in SA of the value of biometrics,” said Mark Elliott, head of Mastercard in the country.
The South African Social Security Agency has used biometric cards to distribute grants since 2012.
Building on the fingerprint scanning technology used in mobile payments, Mastercard’s biometric card stores an encrypted digital template of the user’s fingerprint. Cardholders insert the card into a retailer’s terminal and place their finger on the embedded sensor, which verifies the fingerprint and authenticates the transaction.
The card can be used at any card terminal using EMV (Europay, MasterCard, and Visa) technology globally.
Mastercard was scaling the pilot, with plans to roll the card out globally, Elliott said. Additional trials were planned for Europe and Asia Pacific. The trials in SA had used Pick n Pay and Absa employees.
Richard van Rensburg, deputy CEO of Pick n Pay, said the cards personalised the shopping experience. “Biometric capability will mean added convenience and enhanced security for our customers.”
Absa would make biometric cards available to its customers after the test period, said Geoff Lee, head of card and payments at Absa retail.
Mastercard hoped the biometric cards would further displace cash, said Elliott.
A future version of the card would feature contactless technology with customers hovering their card over a retailer’s terminal and authenticating the transaction by using their fingerprints.
Source:Business DayDate: 2017/04/20
Allan Gray confirms social grans worries
Allan Gray’s recent research into Net1 UEPS Technologies has confirmed many of the concerns raised by nongovernmental organisations (NGOs) about the firm’s handling of its socialgrants contract, but the fund manager, which holds 16% of Net1, said it wanted to pursue other options before selling.
The fund manager has also undertaken to deepen its research capacity through the addition of an environmental, social and governance officer who will interview companies before considering investment.
Andrew Lapping, chief investment officer at Allan Gray said its researchers had done a lot of digging around Net1 and its subsidiary Cash Paymaster Services and had confirmed many of the concerns raised.
“Clearly with Net1 we didn’t know what we should have known,” Lapping said.
Allan Gray would collate the information and present it to the Net1 board. It was still hoping the Net1 board would implement promised changes, including the appointment of new nonexecutive directors.
Lapping’s comments followed the release of a statement by Khayaletisha-based NGO Equal Education, which met senior executives from the fund manager last week, including Lapping, to discuss concerns about deductions from socialgrant recipients’ accounts.
“For some time, Equal Education members have been reporting the impact that grant deductions have on their families. Additionally Equal Education staff members hold personal retirement annuities that are managed by Allan Gray,” the NGO said.
It requested a meeting so that the fund manager could explain the origin of its investment in Net1 as well as its initial “problematic response” to the social grants crisis and its plans regarding Net1.
At the meeting Equal Education explained the real effect that unlawful deductions had and requested that Allan Gray disinvest. The meeting heard that Allan Gray’s researchers had tried to contact the CPS call centre 40 times under the pretext of querying deductions, but were never able to reach someone who could assist.
Lapping said this was a matter of deep concern. “People are experiencing deductions and are then totally powerless to do anything about it. They can’t speak to someone to check if they are illegal or to try and get them reversed.”
Yoni Bass, Equal Education’s chief financial officer, said the NGO was encouraged by Allan Gray’s response.
“They set up the meeting and came to see us. We had a useful interaction and we’re hopeful they’re going to stick to what they’ve undertaken.”
Lapping said Allan Gray continued to be deeply engaged but was still waiting to hear what progress had been made by the Net1 board. He was not sure what was behind the delay.
“I told [Net1 chairman Chris] Seabrooke I did not want to be privy to any information that was not in the public domain.” Providing information to Allan Gray not made public could expose the shareholder to charges of insider trading.
In March, in a bid to tackle the criticism facing the company, Seabrooke said he would be assuming the position of chairman from Serge Belamant who had been CEO and chairman of the group since 2003.
There are only five directors on Net1’s board, three of whom are nonexecutives and have been directors since 2005.
Source:Business DayDate: 2017/04/20
MAS expands Eastern Europe footprint with two malls in Bulgaria
By Alistair Anderson
European-focused MAS Real Estate has expanded its presence in Eastern Europe with the purchase of two shopping centres in Bulgaria in a deal worth about R883m.
The group announced it would acquire the malls for €62m from Globe Trade Centre and European Bank for Reconstruction and Development.
The Galleria Burgas and Galleria Stara Zagora malls were located in the cities of Burgas and Stara Zagora respectively.
"This transaction is in line with our plans to expand into markets with growing economies across Central and Eastern Europe by acquiring accretive income-generating assets with real upside potential through our joint venture with Prime Kapital," MAS Real Estate CEO Lukas Nakos said.
"The transaction increases our income-generating property portfolio by 15.3% from €406.4m to €468.4m," he said.
Galleria Burgas is the dominant shopping centre in Burgas, the country’s fourth-largest city with a population of 200,000.
The mall is fed by a catchment area of about 480,000 people within 60 minutes’ drive, as well as a significant number of tourists during the summer holiday season. The mall lies in the vicinity of the most popular Black Sea resorts on the Bulgarian coast.
"Galleria Burgas has a broad tenant mix consisting of 115 tenants including primarily international fashion and entertainment brands. Due to strong performance and tenant demand, a significant centre extension is being considered with the intention to enhance the earnings from this asset," said Nakos.
Galleria Stara Zagora is the dominant shopping centre in Stara Zagora, the sixth-largest Bulgarian city.
"Galleria Stara Zagora is in need of refurbishment and offers value-enhancing opportunities through operational streamlining and commercial layout improvement," Nakos said. MAS had formulated an approach to improve the operational capacity of the mall.
Peter Clark, a portfolio manager at Investec Asset Management, said the deal was in line with MAS’s strategy.
"The deal is not far from what was expected given the change in strategy and partnership with Prime Kapital. No yields were disclosed but our initial forecasts are that the deal will be initially accretive, which will enable MAS to produce growth in line with its forward guidance.
"Although it may be good for the numbers in the near term, we are uncertain around the long-term performance of these very secondary towns through a full economic cycle," said Clark.
Source:Business DayDate: 2017/04/20
Combined Motor lifts dividend for year
Vehicle-dealer chain Combined Motor Holdings (CMH) has weathered weak car sales and SA’s slow economy over the past five years, latest financial results show.
The group released financial results for the year to February on Wednesday, reporting its revenue had fallen 7% to R10bn for the year, partly due to the closure of three of its BMW franchises over the past two years. Taxed profit, however, grew 8% to R197m. CMH increased its dividend 26% to R1.40. This translates to 17.8% higher basic earnings a share and 14.8% higher headline earnings a share.
CEO Jebb McIntosh said the performance put the group among some of the top counters on the JSE.
The number of new vehicles CMH sold fell 8.3%, which was slightly offset by a 6.7% increase in the number of used vehicles it sold. McIntosh said the drop in new vehicle sales was not overly serious, considering SA’s average decline of 11.4%.
Prospects were likely to improve for the car sales market and for CMH in the months ahead. “Within the motor industry, the majority opinion is that, after a flat start, national new vehicle sales will begin to gain traction during the second half of calendar 2017, with an improvement of 3% to 5%,” said McIntosh.
Mark Hodgson, an analyst at Avior Capital Markets said the group’s results were aheadof expectations.
“The full-year 2017 results were ahead of our expectations. Earnings growth in the second half was lower at 12% including the benefit of a lower effective tax rate of 24% compared with the first half of 2017’s 18% growth, which had the majority of the previous year’s sharebuyback accretion benefit.
“CMH notably outperformed the broader new and used vehicle market and has shed certain underperforming motor retail dealerships. Its car-rental business continues to perform strongly and it is a well-managed group,” said Hodgson.
Source:Business DayDate: 2017/04/20
FSB fines Assupol for contravention of insurance act
The Financial Services Board (FSB) has fined insurers Assupol R500,00 for breaches of the Long-Term Insurance Act: Policyholder Protection Rules, which the regulator says may have prejudiced policyholders.
Assupol had failed to inform policyholders, whose claims were rejected between June 2012 and July 2015, of their rights in terms of the policyholder protection rules, including the right to lodge a complaint with the ombudsman.
This failure to comply with the rules might have caused prejudice to policyholders whose claims were rejected, the FSB said.
“Assupol will consider the submissions of any policyholder who has suffered actual prejudice due to the defective wording in Assupol’s repudiation letters,” said Assupol.
The FSB fine took into account a second regulatory breach in that Assupol contravened the Long-Term Insurance Act between August 2014 and June 2016 by allowing independent intermediaries to share in the firm’s underwriting profit.
This amounted to a failure to exercise proper oversight of the insurer’s outsourced functions, the FSB said.
An underwriting profit is made when an insurer pays out less in claims and claims-related expenses than it earns in premiums paid by clients.
“The practice of remunerating through profit sharing … was restricted to a few funeral parlours,” Assupol said.
Assupol was now remunerating these parlours by way of regulated commission payments only, it said.
Regulatory contraventions were restricted to a few very specific aspects of the business and related to historic incidents, Assupol said.
“The reason for the contraventions was due to an administrative oversight. Since the additional measures and controls were adopted, no further regulatory breaches have occurred.”
Assupol sells funeral, life, savings and retirement annuity products primarily in the lower to middle-income market.
Source:Business DayDate: 2017/04/20
PSG aims to deploy cash
Investment house PSG could be involved with no fewer than four new listings in the financial year ahead as well making substantial capital investments in existing interests and snagging an acquisition aimed at opening up a new strategic direction.
Speaking after the release of results for the year to February on Wednesday, CEO Piet Mouton reckoned that PSG’s R1.3bn cash on hand could be spent within the next 12 months.
PSG’s main investments include significant stakes in low-cost banking initiative Capitec Bank, private education venture Curro, agri-business Zeder, wealth management hub PSG Konsult and smaller investments under PSG Alpha (formerly PSG Private Equity).
Mouton said a chunk of the cash pile would be used to back the separate listing of Curro’s fledgling tertiary education arm later in 2017.
He said PSG would also be investing further capital in power management services subsidiary Energy Partners, which could be listed on the JSE early in 2018.
Mouton noted that the bulk of the R134m spent on smaller investments in the past financial year was earmarked for the promising Energy Partners.
PSG will also be involved in two other listings in 2017 in the form of fast-growing farmer’s retailer Kaap Agri (where PSGcontrolled Zeder is a major shareholder) and Gaboronebased fast-moving consumer goods distribution specialist CS Sales. CS Sales — held within PSG Alpha (which houses the company’s smaller investments) — could apply for a dual listing on the JSE and Botswana Stock Exchange.
Mouton also confirmed that PSG was investigating a sizeable new acquisition that would introduce a new strategic direction into the investment portfolio. “If we are successful, the deal will take a chunk of our capital.”
In the past financial year PSG invested meaningfully in its existing portfolio — most notably the R669m pitched into the Curro rights offer.
The company also acquired 19.2-million shares in wealth management subsidiary PSG Konsult, gaining an additional 1.5% stake for R137m, and swapped its management fee arrangement at Zeder for a larger stake in the company.
PSG Alpha’s portfolio was bolstered significantly, too. The stake in education solutions specialist ITSI was increased from 47% to 61.8% in a R25m deal.
PSG Alpha also looked to complement the offering of Energy Partners by acquiring 100% of Dryden Combustion Company for R60m and hiking its stake in Refsols from 26% to 74% for R45m.
Dryden provides combustion products and services throughout southern Africa, and Refsols provides refrigeration products and services.
Vunani Securities analyst Anthony Clark said that since the PSG annual general meeting in June 2016 — when chairman Jannie Mouton was hawkish on the portfolio — the share price had risen 33% on the back of a 30% increase in the portfolio’s sum of the parts (SOTP) valued.
Looking ahead, Clark cautioned that PSG’s portfolio looked more uncertain given the dominance of Capitec, which accounted for nearly half the SOTP value.
“The other portfolio elements have promise, but they may not be enough to drive the SOTP higher into 2018 … if Capitec falters,” he said.
Source:Business DayDate: 2017/04/20
Pick n Pay to focus on promotions
Pick n Pay will turn to more promotions and bolster its private label after experiencing a steep decline in same-store sales in its 2017 financial year.
In the year to February, it reported like-for-like sales growth of 3.4%, against an internal selling price inflation of 6.1%.
This implied volume declines on a per store basis, Sanlam Private Wealth investment analyst Renier de Bruyn said. “Sales growth remains disappointing and too low to sustain the current earnings trajectory.
“Sales growth for Pick n Pay still materially lags that of Shoprite’s supermarkets in SA. Also, the slower inventory turn as a result of more stores and like-for-like volume declines, as well as the relatively high capital spending on store refurbishments has negatively affected free cash flow generation and resulted in higher debt levels.”
Inventory rose 16.4% after the retailer opened 151 new stores. Headline earnings a share rose 18% to 264.35c and revenue rose 7% to R79bn. It declared a final dividend of 146.4c to a total for the year of 176.3c.
Pick n Pay said a key focus for the 2018 financial year was a stronger promotional calendar.
Investment into private labels and targeted discounts would benefit it and its customers. “We need to make sure that we have good competition on our shelves and that the Pick n Pay brand stands for fantastic value,” said CEO Richard Brasher. Customers should have the same quality but 20% cheaper, he said, which meant a better margin.
Brasher said the company was leveraging its “smart-shopper” programme. “When people are hard-up they buy what’son offer. We are getting a bit cleverer in how we run promotions and tailoring them based on individual customer needs.”
Kagiso Asset Management associate portfolio manager Simon Anderssen said Pick n Pay could yet reap more benefits from its programme. “By evolving the previous model, this data-driven approach has the makings of a sophisticated promotional strategy that can drive margins higher. The current share price still implies strong growth in future earnings, which is likely to be more challenging in a low-growth, low-confidence environment for consumer spending.”
Lentus Asset Management chief investment officer Nic Norman-Smith said Pick n Pay’s results reflected the benefits from the turnaround and centralisation plan.
“Trading margins continue to improve. [But] revenue growth was weak. This is indicative of the weak consumer environment, further compounded by a highly competitive sector.”
He acknowledged Pick n Pay’s progress, but from an investor’s perspective much appeared to be priced into the share and Lentus did not find the price particularly attractive.
De Bruyn said the priceearnings multiple showed the market expected strong profit growth. “The earnings recovery has continued for the fourth year since the low base of 2013. One would like to see improved topline to justify the share price as cost management can only take you so far.”
Pick n Pay’s share price fell 4.4% to R61.69, valuing the company at about R30bn.
Source:Business DayDate: 2017/04/20