News


Doubts on TFG and Truworths

Clothing retailers Truworths and The Foschini Group (TFG) have long been mainstays of the domestic fashion scene.


For years, Truworths was a front runner in the sector, with strong operational performance and world-class metrics making it a standout performer. But things have shifted.


TFG has changed its business model and focused on diversifying itself in terms of product categories and expanding the number of geographies in which it operates.


Where TFG used to be immersed in massappeal women’s apparel and not operating as efficiently as its competitor, analysts now increasingly see it as the stock to back.


But apparel retail has its challenges. SA had its weakest growth in seven years last year and clothing retailers were hit hard.


Single-digit growth is forecast for the sector.


Evan Walker, fund manager at 36One Asset Management, says the outlook for the SA consumer is still deteriorating and he finds the TFG strategy a bit confusing.


“I certainly wouldn’t be exposed to Truworths yet and I’m not sure about the TFG strategy. It’s still a little perplexing for me.


“It is moving to the UK where the retail landscape is weakening by the hour. It is not moving to geographies that are shooting the lights out. It seems to be a bit of a land grab.”


But many see TFG as the preferred “buy” at the moment.


Atiyyah Vawda, retail analyst at Avior Capital Markets, says it prefers TFG for a number of reasons. Its growth profile is more resilient as it is less exposed to womenswear (a segment of the market that is highly saturated) and more exposed to high-growth areas like sportswear. “Overall TFG’s strategy is the one that is supported,” even though it includes a jewellery offering which is struggling due to the weak economic environment.


“A number of its brands operate in underpenetrated or niche segments which also allows for more resilient growth,” says Vawda, adding that it seems to be gaining market share from Truworths.


Vawda points to its cost structure and room for improvement. It has a wide array of brands, and duplication of roles and costs so there is the potential for improvement by focusing on cost management.


Operating cost growth used to be faster than revenue growth at TFG but this is changing. And inventory levels are high because it has slow- moving stock like jewellery, but this can be improved “and we’re already seeing evidence of this in the most recent results”.


Vawda says Truworths has a premium product offering but its product tends to lack innovation. “It is a very strong operator but the top-line growth is weak, hence sustainability of margins is a concern.”


TFG has gone for mass diversification overseas, and its overall strategy is to have 50% of revenue from offshore with possibly a listing overseas at some point.


As one analyst points out, the difficulty with diversification is that you can buy stocks as a portfolio manager directly overseas; there is no need to buy it through a local company with an offshore portfolio.


TFG’s response is that it has the ability to pick speciality brands and, through that, facilitate ownership of these brands.


“It has definitely improved its operating leverage, cost centres, management of working capital and allocation of capital,” says Kaeleen Brown, SBG Securities equity analyst.


Truworths is on the opposite end.


It is sticking to its original nature. It has the best operating retail metrics, operating profit, margins, return on equity and return on investor capital.


“It is the best retailer in SA in terms of numbers,” says Brown. The question is how sustainable that is. “Everyone has been predicting the demise of its gross margins and that hasn’t materialised”.


Alec Abraham of Sasfin Securities says TFG is doing better than Truworths. “The main concern in terms of Truworths is that, given its position in the market, it has upper-income customers looking for internationally inspired fashion. That puts it firmly in the firing line of Zara, for instance.”


He says of all the SA retailers, Truworths is most in danger from Zara, yet it seems to have done the least in terms of trying to defend against that danger. “I don’t think the loss of market share or wallet can be recovered.”


Abraham says Truworths has simply doubled its bet in the space of high-income individuals, buying Earthchild and Naartjie.


“I don’t think it has done enough to defend against the onslaught of Zara. Strategically it is weaker than it was.” The purchase of Office in the UK has given it some diversification geographically, which was prudent, but it’s not particularly big in the context of its business.


Abraham says TFG has done a far better job of diversifying risk geographically and in income groups. It is weighted slightly more to the middle market but also has upmarket brands like Fabiani and G-Star.


Geographically TFG is exposed to the UK, Australia and SA. It has been active in terms of the supply chain with the acquisition of Prestige. Due South covers the outdoor sports scene, which gives access to the younger market and diversification of merchandise categories.


“From a diversification of risk perspective they’ve done a far better job. It seems the management have been a little more on the ball in terms of managing the business in the sense of understanding the customer better.”


From a fundamental point of view, Truworths seems to be stagnating in terms of strategic thinking, says Abraham.


Damon Buss, equity analyst at Electus Fund Managers, says strategically Truworths has the wrong model and hasn’t adapted to the new age. “The price points of the product are set too high. The only way consumers can access the product is through credit. Its credit sales and cash sales growth are both negative, which shows the consumer can’t afford the product and is choosing to shop where better value is offered.


“We like TFG. Strategically it is doing the right thing in terms of increasing local manufacturing capacity.”


Buss talks of the new local manufacturing facility in Caledon that gives a huge advantage in terms of flexibility and quick turnaround, which increases the proportion of on-trend product and makes it more competitive with the fastfashion multinational operators like Inditex (Zara) and H&M.


TFG orders a small percentage of what it wants for the start of the season, then it tracks what is selling well and sends orders to its factories. The factories turn the undyed fabric they hold into finished product on shelf in stores in under 56 days — which is quick turnaround, says Buss.


The other attractive aspect of TFG is that historically it has let each of its brands negotiate terms of trade on its own, on such matters as rental and security. Now, it is doing so as a group and with favourable economies of scale it is able to invest savings into prices and make product cheaper, and/or increase margins.


“Truworths has far less levers to pull in this tough environment,” says Buss, adding that while its product has always been good quality, it is expensive.


“TFG is a buy.”


Others take a different view. Jean Pierre Verster, portfolio manager at Fairtree Capital, says if you compare Truworths to TFG, Truworths has effectively flat-lined in the past few years. “Its latest sales are slightly down, both overall and like-for-like.


“It’s quite commendable, though, that it is showing relatively flat earnings notwithstanding lower sales, assisted by higher gross margins, good expense management and sticking to its more fashionable offering, even though it is more exposed to fashion risk and credit risk than competitors. In the context of that business model it’s not too bad.


“Because of its diversification strategy TFG has shown better growth than Truworths has indicated.” TFG’s same-store sales in Africa were up 2.8% compared with Truworths where sales were slightly down.


“Even on a like-for-like basis, adjusting for new store openings, TFG is outperforming Truworths.


“I find that on a valuation basis there’s not much to choose between TFG and Truworths. TFG is performing better operationally but it’s also trading on a higher p:e ratio than Truworths, and therefore from an investment perspective there’s not much of a difference.


“If you ignore price you would say TFG is the better investment proposition but if you bring price into it, one could say the difference in operating performance has been discounted adequately in the valuation differential between the two.”


Truworths issued an update this month, pointing to a sales drop as a result of the challenging trading environment. Sales for the first 17 weeks of the 2018 financial period fell by 3% to R5.5bn against the same period in the previous year when sales were R5.7bn. Sales at Truworths declined 2% to R4bn, though trading space grew 3%.


TFG in the same week posted interim results for the six months ending September in which revenue grew from R12.9bn to R14bn.


Operating profit before acquisition costs and finance costs rose from R1.7bn to R1.8bn, and headline earnings/share were higher at 504.9c/share from 496.8c/share.


Source:Financial MailDate: 2017/11/17

Nepi Rockcastle's subsidiary closes corporate bond book-build

By Karl Gernetzky


The JSE’s largest listed property group‚ Nepi Rockcastle‚ said on Friday that its subsidiary NE Property Cooperatief had closed the EUR500m corporate bond book-build announced on Thursday.


The Netherlands-based NE Property had priced in the unsecured seven-year bond‚ which matures in November 2024‚ carrying an issue price of 99.051%‚ the company said in a statement. At this level‚ the book was oversubscribed.


The net proceeds would be used for general corporate purposes‚ including acquisitions and developments‚ as and when identified‚ the company said.


Nepi Rockcastle‚ which was formed out of the merger of New Europe Property Investments (Nepi) and Rockcastle Global Real Estate‚ focuses largely on high-growth Eastern European assets.


At 10.28am the group’s share price was down 0.18% to R208.50‚ giving it a market cap of R121bn.


Source:BDproDate: 2017/11/17

Vodacom connects to the fast lane

At a little more than four years old, Vodacom’s “internet of things” (IoT) business was already generating R800m a year in revenue and “accelerating very fast”, group CEO Shameel Joosub said this week.


The division, which was previously called “machine-tomachine”, linked 3.3-million physical objects with the internet at the end of September – a 25% increase from a year before. Its contribution to the top line has edged up to about 1% of Vodacom’s turnover.


The unit generated similar margins to the traditional cellular business, Joosub said.


“With the IoT and the new network and platforms, it’s accelerating very fast – we’re doing over 60,000 connections a month now.”


Joosub expects to see rapid growth in the use of sensors, which can be used to monitor anything from water pipe leaks to the whereabouts of children and pets.


Rival telecommunications firm Telkom said last week that IoT was a “strategic focus area” for subsidiary BCX. More than 100,000 devices and sensors were already being managed, the company said.


Wayne Hull, MD of Accenture Digital for South and subSaharan Africa, said SA’s IoT market was expected to balloon to R800m by 2020.


But while IoT was a “significant opportunity in SA and the rest of Africa”, the industry was still in its infancy “and will take at least another five years to become industrialised”.


Early adopters and innovators faced uncertain returns on investment, “immature” technology, high sensor and data costs and a lack of regulation, Hull said.


Nevertheless, he said, municipalities were already using internet-connected “smart meters” to measure household utility use.


In agriculture, farmers were using sensors placed in soil to track acidity levels, temperatures and other variables in order to improve crop yields, while in healthcare, smartphones and wearable devices were being used to monitor individuals’ health remotely.


Meanwhile, Joosub said Vodacom’s acquisition of a 34.9% stake in Kenya’s Safaricom would help to grow the MPesa money transfer business outside SA.


“The Safaricom team has obviously communicated their intention to offer M-Pesa as a service and to look at taking it beyond the borders of the countries that we have operations in, and that could be quite an exciting opportunity into the future.”


The company has 14-million active M-Pesa customers in Tanzania, the Democratic Republic of Congo, Mozambique and Lesotho. Vodacom said that on average, R24bn had been processed monthly through the M-Pesa system during the six months to September.


hedleyn@bdlive.co.za


Source:Business DayDate: 2017/11/17

Sappi gains from high-margin products

appi delivered “robust” fullyear and fourth-quarter results on Thursday, based on “strong growth” from speciality packaging and its dissolving wood pulp business.


Full-year profit of $338m rose from $319m in 2016, although fourth-quarter profit of 102m lagged the $112m of the matching quarter a year ago. The group further reduced debt in the period, as it continued to reorientate operations away from core fine-coated paper used in advertising materials and upmarket magazines. The focus is on high-margin dissolving wood pulp — used in making clothing and textiles — and specialised packaging products.


Capital expenditure in 2018 was expected to increase to 450m as it continued to convert mills in SA, Europe and North America to facilitate greater production of these products, the group said. “The increase in expansionary capital spending during 2018 is focused on higher-margin growth segments including [dissolving wood pulp] and speciality packaging,” said Sappi CEO Steve Binnie. “This will position us for stronger profitability from 2019 onwards.”


He was particularly pleased with the 36% jump in Sappi’s dividend to $0.15 per share.


Group net debt was $1.322bn, down $86m year on year in the full-year period to September. Net cash for the year and quarter was lower than in 2016 as a result of expenditure on growth projects, increased taxes, the higher dividend payment and higher working capital costs.


“Our success in bringing our debt levels to below our targeted leverage ratio of less than two times net debt to [earnings before interest, tax, depreciation and amortisation] in the prior year meant we could turn our attention to increased investments in growth projects, with the main focus being on conversions of paper machines in Europe and the US to speciality packaging grades and dissolving wood pulp debottlenecking projects in SA,” Binnie said.


The 2017 dividend was covered four times by basic earnings per share, excluding noncash special items. The group aimed to declare continuing annual dividends and achieve a long-term average earnings-to-dividend ratio of three to one. Mish-al Emeran, an analyst at Electus Fund Managers, said Sappi’s results were slightly better than expected because of good cost control across its divisions. But while management had done well to turn the group around, “the lowhanging fruit has been picked”.


“Going forward [they] need to strike balance between growth and risk of oversupplied markets. We think the share price reflects the turnaround, [but] key catalysts have played out.


“Dissolving wood pulp is the key area of growth for Sappi, but it’s an area where there could be significant additional global supply in the medium term.”


allixm@bdfm.co.za


Source:Business DayDate: 2017/11/17

No final dividend from Oceana‚ as revenue drops and profit halves

By Robert Laing


Lucky Star canned pilchards producer Oceana is forgoing a final dividend for its 2017 financial year‚ it said in its results statement‚ released after the JSE closed on Thursday.


Oceana paid a R3.57 final dividend in 2016. Its investors received an interim dividend of 90c for the first half of the 2017 financial year‚ down from R1.12 in the matching period in 2016.


Revenue for the year to end-September declined 17% to R6.8bn‚ which Oceana blamed on a stronger rand. The rand averaged R13.37/$ in its 2017 financial year versus R14.79/$ in its 2016 financial year.


The drop in revenue was also due to the number of cartons of canned fish sold dropping by 16% to 7.9-million from 9.4-million.


Oceana said the amount of pilchards it was permitted to catch was cut by 30% to 45‚560 tonnes from 64‚928 tonnes.


The amount of anchovies it was permitted to catch‚ however‚ was increased by 27% to 450‚000 tonnes from 354‚326 tonnes‚ the highest in 30 years.


“A difficult catching environment in the second half of the year resulted in an increased reliance on frozen fish imports to meet canned production demand. This ensured improved utilisation of local production capacity and the continuity of supply of Lucky Star product‚” CEO Francois Kuttel said in the results statement.


The group bet the wrong way on foreign exchange contracts taken to pay for frozen fish imports‚ resulting in a loss of R61m from a gain of R73m in the prior year. This contributed to its after-tax profit halving to R479m.


Oceana’s US subsidiary‚ Daybrook‚ posted a 36% decline in operating profit to $29m. Measured in rand‚ the drop was 42% to R390m.


“In the context of this year’s performance relative to the level of gearing in the group‚ the board considers it prudent to conserve cash and forgo the payment of a final dividend. It is anticipated that the group will resume dividend payments in 2018‚” the results statement said.


Source:BDproDate: 2017/11/17

Trading hardship continues for Italtile

Italtile says weak trading conditions in the second half of the financial year persisted in the 19 weeks from July 1 to November 10.


This meant “subdued investor sentiment and constrained consumer discretionary spend remained key features” of sales.


Total consolidated “systemwide turnover” in the period was R2.8bn, amid tight markets, it reported on Thursday.


System-wide turnover is defined as the aggregate of the group’s consolidated turnover — total sales by group-owned entities and corporate stores, excluding sales from owned supply-chain businesses to corporate stores — and the turnover of franchisees of the group.


Group-owned entities’ sales include Ceramic Industries and Ezee Tile Adhesives Manufacturing from October 2, following the recent acquisition of Ceramic. Italtile holds a 95.47% stake in the business and an effective 71.54% in Ezee Tile.


“Their contribution to total system-wide turnover for the specified period was R561m — including sales to corporate stores,” the group said. Such sales are referred to as “manufacturing” sales to distinguish them from “retail” sales reported by Italtile’s retail brands — CTM, Italtile Retail and TopT.


While homeowners across the income spectrum had in general invested less freely in their homes than in previous years, CTM’s middle-income market experienced more severe financial pressure than other business segments, the group said, hence lower sales.


“I’d support rights issue as [Italtile] is becoming an unassailable local force in the supply, manufacture and retailing of tiles, sanitaryware and fittings,” said Anthony Clark, an analyst at Vunani Securities.


allixm@bdfm.co.za


Source:Business DayDate: 2017/11/17

Subsidiaries boost Peregrine

Financial services group Peregrine reported a 6% rise in its first-half headline earnings to R272m on Thursday, boosted by its underlying businesses.


The main operating businesses in the group are Citadel, Peregrine Securities, Peregrine Capital, Stenham and Java Capital. Annuity earnings grew 20% to R163m in the six months to end-September, accounting for 79% of the aggregate earnings of the operating entities. Assets under management at Citadel‚ the group’s wealth management business‚ rose moderately to R45.9bn from R44.95bn before. Citadel’s headline earnings rose 14% to R94m, helped by higher performance fees earned.


“Annuity income continues to grow strongly, in addition to which the growth in performance fees and prospective performance fees has also been very pleasing,” the company said. “The group continues to focus on growing its businesses organically and through acquisition, and driving crossbusiness revenue synergies, and remains well positioned to capitalise on further growth opportunities,” it said. Peregrine Capital’s asset base grew to R8.5bn, from R8.1bn a year ago‚ mainly as a result of investment performance.


Peregrine’s money manager spin-off Sandown Capital, which is listing on the JSE and A2X on November 29, plans to pay its investment management company at least R16m in yearly management fees, although more than half of Sandown’s portfolio comprises hedge funds managed by external parties.


Sandown Capital, which holds Peregrine’s hedge fund interests and excess cash, has an aggregate fair net asset value of around R1.3bn. Hedge funds managed by Peregrine Capital and Electus Fund Managers comprise the bulk of this net asset value at 51%.


Sandown will pay an investment management company led by Peregrine chairman Sean Melnick the greater of R16m or 0.95% of Sandown’s annual average net asset value in advance each quarter as a management fee. If growth in assets exceeds 15%, Melnick’s investment company will also be paid performance fees equal to 10% of this growth.


CEO Robert Katz said the fees were fair. “The fee and reward to the management company is market-related,” he said after the release of Peregrine’s results.


“It is not envisaged that the current asset base will remain as is over an extended period of time,” Katz said.


“The hurdle rates are challenging for the management company to achieve a performance fee.”


THE GROWTH IN PERFORMANCE FEES AND PROSPECTIVE PERFORMANCE FEES HAS ALSO BEEN VERY PLEASING


Source:Business DayDate: 2017/11/17

Gold Brands to take Chesanyama division to UK despite slump in local sales

mall fast-food and restaurant franchise company Gold Brands is expanding its Chesanyama division to the UK, while local branches will get facelifts.


Despite sales declining by more than two-thirds in the six months to end-August, the group reported it would launch Chesanyama UK in the first quarter of 2018.


On Thursday, Gold Brands reported revenue dropped by 72.6% to R27m because of a slowdown in the economy as well as management’s restructuring of Gold Brands’ portfolio, internal restructuring of management’s supply chain to further reduce risks and relocating its remodelled Chesanyama stores into higher demographical areas.


While the group suffered losses from the closure of a number of stores due to lease expiry, it reopened 12 stores.


CEO Efpraxia Nathanael said there had been an upswing at new store sales in the time after the reporting period, “bringing the total number of operating franchisees to 190”.


In 2018, Gold Brands plans to upgrade its local Chesanyama stores by giving them a more expansive casual dining feel. It would also introduce the “drivethru” concept.


The company planned to introduce Latin-American-style chain Las Iguanas and Frenchstyle bistro Café Rouge to SA in the first quarter of 2018.


gumedem@businesslive.co.za


Source:Business DayDate: 2017/11/17

Woolworths sales feel the squeeze

Woolworths is battling a tough economic environment in both Australia and SA, putting pressure on sales.


After posting its trading update, which showed a 2.6% growth in overall sales, the group’s share price declined as much as 5% before recovering to close 2.41% lower at R53.75.


Woolworths has three operating subsidiaries — Country Road Group, Woolworths and David Jones, which was acquired in 2014 for R23.3bn.


Its David Jones sales declined by 5.3% in the 20 weeks ended November 12, the group said.


The company was struggling because of its “questionable business model”, Vele Asset Managers equity analyst Matthew Zunckel said.


Consumers globally were trending towards online and specialty retail, yet David Jones remained a department store, Zunckel said.


The management of Woolworths could tweak this over time with the introduction of food, but that would take a lot of time and investment, he said.


In Australia, the group opened eight new Politix locations within David Jones stores and said it was “seeing positive results from this initiative”.


However, Zunckel said it was a matter of concern that Woolworths continued to grow space quite aggressively despite significant volume pressure.


The company fared slightly better in the local market. On Wednesday, Statistics SA reported that retail sales were up 1.4% in the third quarter from the second, while retail trade sales had increased 5.4% in September from a year earlier, to R74.12bn. The food division grew sales “ahead of the market” by 9.3%, double its internal inflation of 4.5%, the retailer said, with sales in fashion, beauty and home division slightly up by 0.7%. Zunckel warned that it could be losing market share in SA as the clothing performance was quite disappointing and the retailer did not seem to be benefiting from the recent uptick in apparel retail sales.


gumedem@businesslive.co.za


Source:Business DayDate: 2017/11/17

Mediclinic tackles drought

Private hospital group Mediclinic is sinking boreholes and closely monitoring its water consumption to mitigate the risk of the Western Cape’s worst drought in 100 years.


About a third (17) of the group’s 50 South African hospitals are in the Western Cape.


The City of Cape Town has been urging business and domestic consumers to curb consumption drastically to ensure the metropolis does not run out of water before next winter’s rains.


At the same time, the Western Cape health department is reactivating disused boreholes and drilling new ones at public hospitals to ensure they have secure water supplies.


“It is very high on our risk register,” said group CEO Danie Meintjes on Thursday, shortly after the company released its interim results for the six months to September 30.


“We started to evaluate our daily consumption at all our facilities in the Western Cape. We sank boreholes and … are busy with a plan to distribute the water,” he said.


“We are quite comfortable that we are in pretty good shape. If the underground water holds we are not worried at this stage, but obviously rain will be the real answer,” Meintjes said.


Mediclinic, which has a primary listing on the London Stock Exchange and secondary listings on the JSE and the Namibian Stock Exchange, operates in Southern Africa, Switzerland and the Middle East. The group has a 29.9% stake in British private-hospital group Spire Healthcare.


It reported a loss of 6.8p per share, due to a knock in patient volumes and once-off items that included a £27.6m provision for the potential settlement of a civil claim against Spire. Underlying earnings per share, which strips out these items, fell 12% to 11.3p.


The timing of Easter holidays, which fell in the first half of Mediclinic’s financial year, reduced patient volume in SA and Switzerland, but cost-saving programmes implemented by management had limited the effect on margins, Meintjes said.


Mediclinic’s revenue in SA rose 4% to R7.581bn, as a 7.7% increase in revenue per bed-day offset a 3.3% decline in bed days sold. Revenue in its Swiss business, Hirslanden, remained flat at Sf819m with bed days and inpatient admissions down 1.9% and 1.3%, respectively.


Revenue from Mediclinic Middle East dropped 5% to 1.475-billion United Arab Emirates dirhams, but fell only 1% after adjusting for the sale of noncore assets.


“Overall, it’s quite a lacklustre set of results, with margin compression across all three regions,” said Nitrogen Fund Managers CEO Rowan Williams. “Funders are putting pressure on all the hospital groups to be more efficient and release patients sooner than they have in the past, and we see that as an ongoing trend.”


Mediclinic paid its shareholders an interim dividend of 3.2p per share.


kahnt@businesslive.co.za


Source:Business DayDate: 2017/11/17

Taste plans to raise more than its market capitalisation

Taste Holdings, the fast-food franchising group that holds the local rights to global brands such as Starbucks and Domino’s, will raise more than its market capitalisation when embarking on its fifth rights issue in slightly more than three years.


On Thursday, Taste detailed proposals for a rights issue to raise R398m — underwritten by US-based Riskowitz Value Fund, which is already a large shareholder in Taste. The rights offer will be pitched at 90c/share — a 14% premium to Taste’s closing share price on Wednesday.


The rights issue proposal will mean that Taste has raised about R1bn of new capital in the market in less than four years. The amount to be raised in the latest rights issue is more than the company’s market capitalisation of about R353m.


The company, which listed in 2006 with a small private placement of R22.5m, also raised R180m in August 2014, R95m in April 2015, R226m in late 2015 and R120m in May.


The possibility of a sizeable rights offer was signalled earlier in 2017, when Taste was unable to sell off its noncore jewellery franchising operations for an acceptable price. Directors had indicated that the board of directors was evaluating alternatives to settle its debt.


The sale of the jewellery division would have allowed Taste to settle its long-term bond debt of R225m and mobilise any surplus cash to fund the pizza brand Domino’s and coffee brand Starbucks.


Vunani Securities analyst Anthony Clark predicted a large number of Taste shareholders would not follow their rights at a premium-priced 90c a share.


“This cash is needed as a desperate measure to repay R225m of bonds,” Clark said.


But on Thursday, Taste was still talking optimistically, reiterating that the continued roll-out of Starbucks and Domino’s stores was necessary for the food division to achieve earnings before interest, tax, depreciation and amortisation profitability.


It contended that the expected “moderate consumer recovery” in 2018 would position the food division to achieve a monthly cash breakeven in the second half of the year.


Lentus Asset Management chief investment officer Nic Norman-Smith said the Taste rights offer coincided with a difficult trading environment for fast food companies.


“It’s not the kind of [trading] environment that makes for attractive future returns.… A prolonged boom period in this segment of the consumer sector tends to lead to a lot of new competition, which drives down profitability. And on top of that, you now have weaker demand.”


In the half-year to endAugust, Taste posted a bottom line loss of R65m.


But CEO Carlo Gonzaga said at the time that Domino’s and Starbucks had performed acceptably, with Domino’s managing a 1% increase in samestore sales and Starbucks stores individually beating the 25% internal rate of return hurdle.


Gonzaga also stressed that the benefits of growing slowly in Starbucks were paying off.


Two new Starbucks stores were opened in August 2017, with a further four openings expected by year’s end to bring the number of outlets to 10.


Gonzaga was unavailable for a comment on Thursday.


hasenfussm@fm.co.za


Source:Business DayDate: 2017/11/17

Taste Holdings to raise almost R400m in rights issue

By Robert Laing


Fast-food and jewellery chain franchiser Taste Holdings plans to raise R398m in a rights issue fully underwritten by its largest shareholder‚ Riskowitz Value Fund.


The rights offer is at 90c a share‚ a 20% premium to the 75c that Taste was trading at on Thursday morning. This indicates Riskowitz is willing to buy all the rights-offer shares.


Companies wanting to raise money from existing shareholders usually offer rights-issue shares at a discount to the prevailing price‚ allotting new shares according to how many shares investors already own.


Thursday’s statement did not say how many new shares Taste intends issuing‚ nor did it give a ratio of how many rights offer shares existing shareholders would be offered.


The 90c offer price and R398m capital raising targets implies about 442-million rights offer shares‚ which means Taste’s shares in issue will nearly double from the current 459-million.


Taste said as it would be “issuing more than 30% of its shares in issue at the rights offer record date”‚ which would take it close to its maximum authorised share capital‚ it needs shareholders to approve an amendment to its memorandum of incorporation.


Taste originally intended to repay R225m debt and fund the continued roll-out of Starbucks and Domino’s by selling jewellery chains NWJ‚ Arthur Kaplan and World’s Finest Watches.


In September‚ it warned shareholders that it had concluded that it was not an opportune time “due to the current prevailing macroeconomic environment and generally tough retail trading conditions”.


Source:BDproDate: 2017/11/17

Impairments and exceptional items push Medeclinic into the red

Mediclinic International incurred a loss of £50m in the six months to end-September‚ which the private hospital group blames on the impairment charge on the equity investment in Spire Healthcare Group and other exceptional items.


Mediclinic’s underlying earnings were down 11% to £84m‚ affected by the performance of the Hirslanden and Middle East operating divisions and the decline in contribution from Spire.


Hirslanden is the largest private acute care hospital group in Switzerland and serves about one-third of inpatients treated in Swiss private hospitals.


The private hospital group said the timing of Easter holiday and a subdued market during the summer months in Switzerland affected patient volumes. As a result‚ revenue was flat Sf820m.


Mediclinic Southern Africa contributed £34m to the group’s underlying earnings compared with £30m in the comparative period.


Group revenue was up 10% to £1.40bn and underlying earnings before interest‚ tax‚ depreciation and amortisation (ebitda) up 5% to £232m.


The interim dividend per share was maintained at 3.3 pence per share.


Source:BDproDate: 2017/11/17

Sappi raises it annual dividend as HEPS rise 10%

By Karl Gernetzky


Paper and pulp producer Sappi’s share price rose 3% on Thursday‚ after the company upped its dividend for the year to end-September to 15 US cents from the prior period’s 11c.


Headline earnings per share (HEPS) rose 10% to 64c during the period‚ despite overall flat volumes for the period in its core paper business‚ the company said in a statement.


Earnings before interest‚ tax‚ deductions and amortisation (ebitda) increased 6% during the period to $785m‚ with an additional $20m due to an extra accounting week in this financial year.


Higher paper pulp prices‚ a key input cost‚ and the negative effects of a stronger rand weighed on performance‚ but was offset by lower interest charges and reduced operational costs‚ the company said in a statement.


Net profit for the period increased to $338m from $319m‚ with the European business — about 48% of sales — experiencing a strong fourth quarter due to expanded volumes.


A stronger rand weighed on the Southern African business during the fourth quarter of the year‚ while fixed costs declined owing to an absence of scheduled-maintenance closures‚ the company said.


At 1.05pm Sappi’s share price was up 3.04% to R97.89‚ having earlier reached an intraday best of R98.98. At the same time it was up 8.83% for the year.


Source:BDproDate: 2017/11/17

Cautious approach leads to Gemgrow meeting its forecasts

By Alistair Anderson


JSE-listed Gemgrow Properties remains focused on its core portfolio even as it remains actively pursuing yield enhancing acquisitions.


In its maiden full year results on Thursday‚ the company declared a dividend of 26.09c per A share and 19c per B share for the quarter ended September. This brings the total dividend for the full year to 101.87c per A share and 73.51c per B share‚ and is in line with the forecast in the circular posted to shareholders in September 2016.


Alon Kirkel‚ the chief operating officer of the specialist high-yielding‚ high-growth real-estate investment trust‚ said the company had to be very cautious and turned down various possible acquisitions in the reporting period.


“Often sellers’ prices have been unrealistic. We have looked at deals that would amount to billions‚ as the economic environment is tough and challenging. We prefer to be extra patient‚” he said.


“We are pleased to announce meeting our forecast‚ as per the circular‚ during this reporting period‚” said Kirkel.


“We have successfully integrated the assets acquired from Vukile and Arrowhead.” Gemgrow owns a portfolio of 129 retail‚ industrial and office properties valued at R4.5bn‚ located across all provinces.


The portfolio comprises 14% retail‚ 37% office and 49% industrial assets as measured by gross lettable area. The average value per property as at September 30 2017 was R34.6m.


During the period under review Gemgrow acquired properties to the value of R580m at a yield of 11.85%. The transfer of these properties will be effective in the new financial year.


“Gemgrow is uniquely positioned to consolidate high-yielding assets in the market through yield accretive acquisitions on a fair value basis‚” said Junaid Limalia‚ the company’s chief financial officer.


Vacancies marginally fell from 7.73% to 7.71%; with retail at 5.77%‚ industrial at 6.18% and office at 10.51%.


Gemgrow has a low loan-to-value of 20.65%.


“Our forward fixing of all the aforementioned transactions‚ has resulted in 94% of total debt being fixed from November 15 2017”‚ Kirkel said.


“The dividend growth from our current portfolio‚ including concluded acquisitions‚ is expected to be between 7% and 9% on the B share‚ for the 2018 financial year.”


Source:BDproDate: 2017/11/17

Woolies will be dreaming of a prime Christmas

By Robert Laing


Woolworths will need strong Christmas sales for its interim turnover growth to outpace inflation‚ a trading update for the first 20 weeks of its financial year released on Thursday morning indicated.


The retailer said its overall sales for the 20 weeks to November 12 grew 2.6%‚ with weak performance from its Australian department store chain David Jones dragging down strong growth from its South African food division.


No rand values were provided‚ and the trading update did not forecast what earnings growth or decline Woolworths expects to report on February 22.


“The difficult trading conditions experienced in both SA and Australia during the last quarter of the previous financial year have continued into the current period‚” the trading update said.


Woolworths said its food division grew sales “ahead of the market” by 9.3%‚ double its internal inflation of 4.5%.


Excluding new stores‚ the food division grew sales 5.3%. Its retail space increased by 8.2% from the matching 20 weeks in 2016.


What Woolworths now calls its fashion‚ beauty and home — previously called clothing and general merchandise — grew sales 0.7%‚ lagging inflation of 0.9%.


Excluding a retail space expansion of 4.2%‚ sales declined by 2.4%.


Measured in Australian dollars‚ the group’s clothing chain Country Road grew sales 8.3%.


Excluding the Politix chain which Country Road acquired in November 2016‚ the Australian clothing chain’s retail space shrank by 2%.


Woolworths’s Australian department store chain David Jones remained a headache‚ with sales declining 5.3% in Australian dollars. Its trading space was reduced by 2.2% as “we continue to drive space optimisation”.


“Disruption caused by the refurbishments of the Bondi Junction Food Hall and the Elizabeth Street store‚ as well as from the implementation of the new inventory management system also impacted trade‚” Woolworths said.


Source:BDproDate: 2017/11/16

Naspers opens firmer‚ extending gains on Tencent results

By Maarten Mittner


Naspers opened firmer on the JSE on Thursday after results from Chinese internet company Tencent‚ of which Naspers owns about a third‚ beat analyst expectations.


Naspers was up 0.62% at R3‚680‚ bringing gains for the year so far to 82.7%. It rose 1.95% on Wednesday to a record R3‚739.83.


Tencent was up 2.5% in Hong Kong trade on Thursday‚ after falling on Wednesday.


Tencent’s results were released after the market closed on Wednesday‚ and all Asian markets ended the day sharply lower.


Tencent reported net profit rose nearly 70% in the quarter to end-September from a year earlier‚ with strong growth at its mobile-gaming and digital-content divisions.


Earnings for the quarter rose to more than 18-billion yuan ($2.7bn‚ or about R38bn) from about 10.6-billion yuan a year earlier. Analysts polled by S&P Global Market Intelligence expected a profit of 15.7-billion yuan‚ Dow Jones Newswires reported.


Tencent has doubled its market value so far this year.


Naspers’s high valuation inevitably raises questions about the sustainability of its growth‚ but analysts remain relatively optimistic.


It is trading at a demanding price:earnings ratio of 127‚ meaning Naspers will have to deliver the same earnings growth for the next 127 years to justify the present market valuation.


Old Mutual Multi-Managers analyst Izak Odendaal said Tencent‚ and other Chinese tech companies such as Alibaba‚ were generating surging earnings growth with positive cash flows.


“This is very different to most companies during the 1990s dotcom bubble‚” he said.


Naspers’s huge market cap — at R1.575-trillion — has created problems for many active asset managers‚ since it is virtually impossible to be overweight even on a positive outlook.


Index trackers have therefore beaten active equity managers this year‚ but were at risk of a huge exposure to a single share‚ Odendaal said.


Some shareholders have called for the unbundling of Tencent as Naspers’s overall market value at present is smaller than its stake in Tencent should reflect.


Source:BDproDate: 2017/11/16

Tech investment eats into the profit of Investec's UK division

By Robert Laing


Strong growth in Investec’s Southern African specialist banking division offset declines in its UK specialist banking and South African asset management divisions.


Investec’s interest income grew 18% to £1.23bn and its fee and commission income grew 12.4% to £754m in the six months to end-September from the matching period in 2016‚ it reported on Thursday.


After-tax profit grew nearly 20% to £238m. Investec raised its interim dividend by 5% to 10.5 pence.


The group segments itself into three divisions — asset management‚ wealth and investment‚ and specialist banking — split between two geographic regions — Southern Africa‚ and UK and other.


“Our geographical and operational diversity supports a strong recurring income base and earnings which will help us weather an uncertain world‚” Investec CEO Stephen Koseff said in the results statement.


Investec’s largest division‚ Southern Africa specialist banking‚ reported a 44% surge in operating profit to £165m‚ helping the group’s total grow 10% £372m.


Measured in rand‚ this division’s operating profit growth was halved to 21.6%‚ the results statement said.


In contrast to SA‚ Investec’s UK specialist banking division suffered a 22% decline in operating profit to £74m.


Investec said this was partly due to “particularly strong investment banking and client flow trading activity levels in the prior period”.


It was also due to the group investing in technology.


“We have improved and enhanced our digital and online services to complement our strong client centric service model. This spending has further strengthened our franchises in private banking and wealth management‚” Koseff said.


Investec’s UK asset management division grew operating profit 16% to £50m while its Souther African asset management division suffered a 15% decline to £33m.


“The business benefited from higher average funds under management supported by positive market movements and solid net inflows of £2.1bn. Earnings were negatively impacted by lower performance fees in SA‚ Investec said.


Its UK wealth and investment division grew operating profit 21% to £35m while its Southern African sister division’s remained flat at £14m.


“The UK business had a strong performance while earnings in SA have been impacted by lower brokerage volumes‚” the results statement said.


“Investec achieved a satisfactory operating performance in all its businesses despite macroeconomic and political uncertainty in both SA and the UK‚” Investec MD Bernard Kantor said in the results statement.


Source:BDproDate: 2017/11/16

Reinet H1 net asset value drops EUR604m to EUR5.4bn

Investment group Reinet said on Thursday that its net asset value dropped EUR604m to EUR5.4bn in the six months to end-September‚ partly reflecting a drop in the value of its investment in British American Tobacco (BAT).


The share price of BAT‚ which makes up two-thirds of the Reinet’s asset value‚ decreased to £46.72 during September‚ from £53 in March.


The weaker pound against the euro in the review period also knocked the value of Reinet’s investment in BAT‚ which has a primary listing on the London Stock Exchange.


The drop in the share price was partly attributable to reports that US regulators could cut nicotine in cigarettes to non-addictive levels.


Reinet holds 68.1-million shares in BAT‚ which represents 2.97% of BAT’s issued share capital‚ a decrease from 3.65% at March 2017. This drop is as a result of the increase in BAT’s share capital after acquiring Reynolds American.


Net asset value was EUR5.51bn in the year-ago period.


Source:BDproDate: 2017/11/16

Peregrine H1 earnings rise 6% to R272m

Financial services group Peregrine on Thursday reported a 6% rise in its first-half headline earnings to R272m‚ boosted by its underlying businesses.


The main operating businesses in the group are: Citadel; Peregrine Securities; Peregrine Capital; Stenham; and Java Capital.


Annuity earnings grew 20% to R163m in the six months to end-September‚ accounting for 79% of the aggregate earnings of the operating entities.


Assets under management at Citadel‚ the group’s wealth management business‚ rose slightly to R45.9bn from R44.95bn. Citadel’s headline earnings rose 14% to R94m‚ helped by higher performance fees earned.


“Annuity income continues to grow strongly‚ in addition to which the growth in performance fees and prospective performance fees has also been very pleasing‚” the company said in a statement.


“The group continues to focus on growing its businesses organically and through acquisition and driving cross business revenue synergies‚ and remains well positioned to capitalise on further growth opportunities.”


Peregrine Capital’s asset base grew to R8.5bn from R8.1bn a year ago‚ mainly as a result investment performance.


Source:BDproDate: 2017/11/16

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