Business Maverick


The Finance Ghost: On the paper trail of Mondi and Sappi

The Finance Ghost: On the paper trail of Mondi and Sappi
Employees oversee the production of newsprint paper at the Ngodwana wood mill, operated by Sappi Ltd in Mpumalanga. (Photo: Dean Hutton / Bloomberg via Getty Images)

Both paper and packaging companies have grown earnings sharply year on year, with Sappi making the best of tight global markets with its strong pricing and Mondi hoping to dispose of its Russian business.

It’s funny how companies sometimes seem to synchronise their earnings releases. A week ago, the retailers timed it perfectly with three grocery releases in a single day. This past week, Sappi and Mondi managed to release updates on the same day.

Both companies have grown earnings sharply year on year. Despite this, both share prices dropped on the day of release, despite the broader market having a green day.

Mondi’s results covered the six months to June 2022 and the group achieved margin expansion in each of its segments. The share price has taken a huge knock this year because the Russian operations contribute nearly 20% of Ebidta (group earnings before interest, taxation, dividends and earnings). 

This division is now disclosed as a discontinued operation, as Mondi is hoping to dispose of the Russian business. As the price achieved for such a disposal is likely to be low, it helps that the group’s balance sheet looks a lot stronger than it did a year ago. Net debt to Ebidta is only 0.8x. The results have supported an 8% increase in the interim dividend.

Sappi’s results were for the quarter ended June 2022, marking the end of the third quarter of this financial year. Looking at the nine-month period, sales were up 40% and Ebidta jumped by 167%. 

This tells you that the comparable period was awful and that the current period has enjoyed strong pricing for Sappi’s products. Profitability has swung from a loss of $22-million in the comparable nine-month period to a profit of $510-million in this one.

MTN paints Africa yellow

MTN’s African subsidiaries are doing incredibly well. Rwanda reported probably the toughest result among the subsidiaries and still achieved Ebidta growth of 17.8%, with its Ebidta margin dipping from 50.4% to 49.3%. 

The other businesses are running at Ebidta margins comfortably above 50%, with MTN Ghana putting in a particularly stunning performance of 36% Ebidta growth and a 57.4% Ebidta margin.

MTN’s holding company is what really matters to South African investors, with the JSE-listed group trading at just more than R140 per share. 

A trading statement early in the week confirmed that earnings growth was strong in the six months ended June 2022, with headline earnings per share up by between 40% and 50%.

The concern around MTN (and the likely reason that it has dropped sharply from levels above R200 earlier this year) relates to the upstreaming of cash from the African businesses and in particular Nigeria. 

Despite strong oil prices, Nigeria is dealing with shortages of dollars again. Emirates Airlines announced this week that it would be reducing flights to Nigeria because of “trapped” revenue — funds that it can’t get out of the country.

Tricky times for Telkom

Sticking with telecoms, Telkom released a trading update for the quarter ended June. MTN is contemplating an offer for Telkom, presumably based on a desire to own the fibre assets and probably the spectrum, though the Competition Commission may not be comfortable with the latter. 

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Telkom isn’t exactly attractive on an overall basis, with revenue down 3.2% and Ebidta taking a knock of 15.2%. Fibre business Openserve has nearly 415,000 homes connected to its network and has laid fibre past 890,000 homes. That’s a proper asset sitting inside Telkom, especially since MTN’s major rival Vodacom is busy with a fibre deal of its own with CIVH, which includes Vumatel and Dark Fibre Africa.

A hot mess

Massmart (or Messmart, my preferred name) just keeps falling apart. In the 26 weeks ended June 2022, sales from continuing operations increased by only 1.9%. 

In an inflationary period, this can only mean that volumes dropped. The group makes a real effort to strip out the worst of the store base and disclose a sales number that shows modest volume growth.

The market was having none of it, punishing the share price on the day of the release. There was a partial recovery the following day as the broader market rallied. 

Daily volatility aside, the reality is that Massmart lost between R885.7-million and R921.5-million from its continuing operations in the space of just six months.

With international parent company Walmart under pressure, one wonders how much more patience the Americans will have with this group. The high-margin general merchandise category is taking serious strain (sales down 1.4%), which is part of why the group is posting such losses.

Of course, the biggest reason of all is that Game continues to destroy shareholder value. Massmart just won’t give up on that format, despite it being fairly obvious to everyone else that it is doomed to fail.

Fire and Brimstone

Brimstone Investment Corporation released a nasty trading statement that reflects a decrease in headline earnings per share of between 85% and 95%. This was driven by downward revaluations of listed investments and a decrease in share of profits from associates and joint ventures.

This is exactly what shareholders don’t want to see. 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 countrywide for R25.


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