Business Maverick


The Finance Ghost: Sappi prints paper money

The Finance Ghost: Sappi prints paper money
From let: The Sanlam building in Cape Town. (Photo: Gallo Images / Misha Jordaan) | A worker walks between stacks of paper rolls at Goldfields Logistics in Germiston, a Sappi distribution company. (Photo: Naashon Zalk / Bloomberg via Getty Images) | (Photo:

The market liked what it heard when the South African pulp and paper company said it was expecting another strong performance in the fourth quarter.

Sappi has had a great week, with its share price up nearly 10% in the past five days or so. The announcement that drove this move was short and oh so sweet. When a management team gives guidance for record quarterly earnings, the market responds.

Sappi’s previous guidance was for a strong fourth quarter despite inflationary pressures. The situation is even better than that, with performance expected to surpass the record earnings before interest, taxes, depreciation and amortisation (Ebitda) achieved in the third quarter.

Encouragingly, European energy prices have been lower than expected. Market conditions have also been more favourable than management thought they would be.

Despite this useful rally, the share price is only up about 5.5% this year.

Pepco bucks the trend in Europe

Steinhoff has announced a trading update that pointed to the latest quarterly update from Pepco.

With revenues in the Pepco format up 17.4% in constant currency, it’s important to note that like-for-like growth was 7.4%. The rest is from new stores, the result of an aggressive roll-out strategy primarily in Central and Eastern Europe.

As encouraging as the Pepco story sounds, accessing it via Steinhoff means exposure to the group balance sheet and all its problems. With Steinhoff in the process of trying to extend the duration of its debt, there’s still much uncertainty about the value of equity at group level.

Grindrod is still driving volumes

Grindrod’s share price is nearly 90% higher this year. This is a perfect example of the importance of valuation. When trading at a heavy discount to underlying value, a company just needs a catalyst for that situation to reverse.

Other than asset disposals to unlock value, Grindrod’s share price has been driven by the cycle finally playing out in its favour. The latest update for the nine months to September reflects 23% growth at the Maputo Port and 47% in Grindrod’s dry bulk terminals. Even the trains are back on track, with the locomotive deployment rate improving from 32% to 63%.

Although there’s little sign of things slowing down operationally for Grindrod, investors need to be careful not to chase this one too hard. Grindrod is down more than 12% in the past month.

Sanlam gets a little more Afrocentric

It’s unusual to see a partial offer in the market. In this type of deal, the acquirer is looking to achieve a specific shareholding rather than a 100% shareholding in the target.

As Afrocentric announced an offer from Sanlam, many on Twitter incorrectly panicked about another company leaving the JSE. There’s no plan to delist Afrocentric, as Sanlam only wants a stake of between 55% and 60%.

The rationale for the deal is for Sanlam to plug the Afrocentric product suite into Sanlam’s client base. There’s also the possibility of cross-selling Sanlam products to Afrocentric clients.

With an offer price of R6 per share, the Afrocentric share price of R5.25 reflects the partial offer mechanism. The arbitrage trade that usually drives the price closer to the offer price doesn’t work here, as it’s unclear exactly how many shares each shareholder will be able to sell to Sanlam.

The share price is up 28% in the past month. If you’ve held since the beginning of the year though, you’re now flat for the year.

Keep an eye on Aveng

After agreeing to sell Trident Steel for a favourable price, Aveng has released more good news in the form of a strong order book in McConnell Dowell, the Australian business.

For those who enjoy more speculative plays on the JSE, there’s perhaps some digging to be done into Aveng’s numbers. 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 DM168 newspaper, which is available countrywide for R25.


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