The Finance Ghost: The Covid-19 takeaways for Spur and Adcock Ingram
Spur is looking a lot healthier these days, even if the onion rings are just as unhealthy as before.
Formats like Spur and RocoMamas did as well as possible under the circumstances of lockdowns, aided by a strong contribution from takeaways – 53% of RocoMamas’ revenue in the six months to December 2021 was thanks to takeaways. I’m confident that the venture capital investors in Bolt Food played a leading role in that.
In that period, group revenue rose by 40% and headline earnings per share (HEPS) shot up by 119.3%. There’s even a dividend, as Spur has no debt and is cash generative.
Sibanye: inflation doesn’t look so transitory
Sibanye’s share price was greatly assisted by Putin’s invasion of Ukraine, as investors flocked to gold as a safe-haven asset (not Bitcoin!) and pushed the price of platinum higher because of Russia’s critical global position as a platinum producer. Sibanye’s primary exposure is to these metals, with the battery metal strategy still in its infancy.
The group gave us insight into the inflationary pressures in the US by reaching a collective bargaining agreement with the union at the East Boulder mine in Montana. In case you were wondering, SA didn’t invent mining unions.
The deal works out to an average increase of 3.8% per year for the next three years: lower than current US inflation but much higher than in recent years.
The narrative of inflation being transitory has rapidly fallen away, replaced by concerns about energy and wage inflation.
Curro looking good, but watch those utility costs
The National Energy Regulator of South Africa (Nersa) just approved a 9.61% rise in electricity tariffs – not great news for businesses with extensive properties that have high utility costs. You know, like schools.
The Curro valuation looks far more reasonable these days than a few years ago, so those who bought in the past year have been richly rewarded. Those who bought the hype a few years ago will still be waiting for positive share returns long after their kids have left school.
Student numbers increased 9.3% in 2021 and are 6% higher in 2022, so progress is being made in filling the desks. The schools are still running well below capacity, which is a frustration and an opportunity to drive higher return on assets.
The crux for Curro is the extent to which it can achieve operating leverage. In the year ended December 2021, revenue growth was slightly lower than earnings before interest, taxes, depreciation, and amortisation growth, so operating leverage was limited.
Nersa and other inflationary pressures won’t help, as the middle-class client base will be under pressure, but a return of ancillary income (e.g. extramurals) and careful cost management may continue to rewardshareholders. I’ve started a long Curro position based on this view.
Adcock Ingram welcomes the sneeze without the sleaze
Ironically, Covid wasn’t good for Adcock Ingram. If you didn’t catch Covid, you probably didn’t catch anything. There was practically no flu season in either of the past two winters, other than the worst flu of them all.
In the six months to December 2021, people got sick again. Kids went back to school and brought home the cocktail of sniffles that Adcock has built its business around. Hospitals pumped out elective surgeries again, driving demand in that division as well.
Revenue increased 16% and trading profit jumped 25%. HEPS was 30% higher and so was the dividend, so the profit growth was matched by cash flows. Inflation is one to watch for this business, as medicine prices are regulated. Adcock has non-regulated products of course, but an increase in the single exit price of just 3.5% isn’t enough to counter the inflationary pressures in SA. DM168
After years in investment banking by The Finance Ghost, his mother’s dire predictions came true: he became a ghost.
This story first appeared in our weekly Daily Maverick 168 newspaper which is available for R25 at Pick n Pay, Exclusive Books and airport bookstores. For your nearest stockist, please click here.
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