| Thursday 20 January 2022 Good morning Voornaam,
It was an unusual day of news on the JSE. It was all about quality rather than quantity, with fewer announcements than usual but several great topics to sink our teeth into.
Capitec is aiming to issue shares worth R1 billion to employees to improve the bank's B-BBEE status. Capitec Bank is currently 19.39% Black Owned and the target is to get to 25% as per the Financial Sector Charter. This proposed deal would add 1.5 points to the current B-BBEE score. The recipients would be restricted from trading the share for a period of five years. The staff will be allowed to subscribe at a 50% discount to the share price. In addition, Capitec will fund the subscriptions through loans to the employees at the SARB repo rate plus 1%. 50% of dividends on the shares will be retained by Capitec to pay interest on the loan. The full loan needs to be repaid within five years.
Accounting rules and Capitec's valuation multiple s mean that the illustrative impact of the deal on profit (an indicative drop in diluted HEPS of -13.3% in the interim results) is far more severe than on net asset value per share (negligible impact). B-BBEE deals are not cheap for existing shareholders and this deal will need 75% shareholder approval before going ahead. A circular will be issued to this effect.
Mining giant BHP has released an operational update for the six months ended December 2021. Shareholders should refer to the announcement for all the details on specific metals in the group. Production guidance for the 2022 financial year is unchanged for iron ore, energy coal and nickel. Copper production is trending towards the low end of the guidance range and metallurgical coal guidance has been reduced. Unit cost guidance remains intact other than for metallurgical coal, where guidance has been increased i.e. the cost is expected to be higher.
BHP is busy with an administrative transaction to unify its corporate structure (move everything underneath the Australian parent company) and is merging its petroleum business with Woodside as the company divests from fossil fuels. The Carrejon operation was sold to Glencore and the company is implementing a deal to sell BHP Mitsui coal. The company is trying to invest in "green metals" but is doing so with capital discipline, choosing to walk away from the deal to acquire Noront Resources after a bidding war drove the price too high.
Pan African Resources also released an update for the six months to December 2021. Gold production increased by 9.9% to a record half-year production. Despite paying a record net dividend in December 2021, group net senior debt decreased by 60.1%. The group has increased its full year production guidance to 200,000oz after producing 108,000oz in the interim period.
There were many other details in the Pan African Resources announcement, so interested parties should read it in full. The interim results will be released on 16 February.
There are three feature articles today. Richemont has clearly demonstrated that the rich keep getting richer, releasing a blockbuster sales announcement for the quarter ended December 2021. I've also written on Karooooo's third quarter result, a company that regular readers will know is a core inclusion in my portfolio. Finally, I've written on Kaap Agri's substantial investment in petrol service station operations.
Also be sure to check out the DealMakers announcement on the transactions shortlisted for the Business Rescue Transaction of the Year 2021. It's a sign of the times that such an award even exists.
Have a terrific day!
The Finance Ghost
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