The Finance Ghost: The market lowdown on Bell, MTN, MultiChoice, Truworths and Clientele

The Finance Ghost: The market lowdown on Bell, MTN, MultiChoice, Truworths and Clientele
Truworths logo. (Photo: Gallo Images / Foto24 / Edrea du Toit) | MTN logo. (Photo: Guillem Sartorio / Bloomberg via Getty Images) | Clientele (Photo: X, formerly known as Twitter)

Bell’s latest trading statement has given bulls something to hang on to, as it came out way ahead of the December year-end. The company is so sure of its earnings that it has already guided for Heps of at least 750 cents, which makes the share price look ‘cheap' at R24.

There has been a significant uptick in mining activity in the aftermath of the pandemic. Although commodity prices have been moving lower in the past 12 months and Chinese data continue to cast a shadow over the industry, the reality is that the mines are making profits and need to keep investing to ensure they have a business in years to come.

That’s good news for a group like Bell Equipment that sells the fancy yellow machines that make Toddler Ghost very excited in the toy store. A few adults are exhibiting toddler levels of excitement at this share price, with Bell up a whopping 65% this year. The share price chart is slightly insane, as the increase over just the past month is 42%.

This puts the Bell share price at risk of a correction, as parabolic increases like to consolidate lower. As a rule, I don’t chase jumps like these. Yet, Bell’s latest trading statement has given bulls something to hang on to, as it came out way ahead of the December year-end. The company is so sure of its earnings that it has already guided for Heps of at least 750 cents, which makes the share price look “cheap” at R24. A price-earnings multiple of 3x or lower is the norm for Bell, so it looks like the market is betting on earnings being significantly higher than 750 cents.

This is a perfect example of what makes the market so interesting. It takes a lot of guts to keep holding after a rise like this and even bigger guts to buy into the chart for the first time. And sometimes, spilling blood and guts is the outcome for punters. Be cautious with position sizing.

The pain of African currencies

We now have group results available for MTN. They seemed to bring some stability to the share price, with a move from R90 to R95. This is despite group Ebitda falling by 13.8% as reported in the third quarter and increasing by 6.2% in constant currency. This shows how severe the impact of currency depreciation has been for businesses operating in Africa.

Over nine months, group Ebitda fell by 2.8% as reported and grew by 11.2% in constant currency terms. Either way, the Ebitda margin has contracted and that’s not great news.

The pain is also in South Africa, a slow-growing market where service revenue is increasing at a rate below inflation. With pressure on numerous costs, not least of all energy backup and security at its infrastructure, this doesn’t do MTN any favours.

Similarly, MultiChoice is a much better story before forex losses rather than after them. Trading profit for the six months to September is up by between 7% and 12% before forex losses, despite significant investment in Showmax and a jump in local content investment. Things deteriorate from there onwards, with a headline loss per share of between 287 cents and 291 cents vs a headline loss of 58 cents in the comparable period.

Cash remittances from countries like Nigeria are difficult and expensive, often taking place at a rate that is even worse than the official rate. This is where the second layer of forex losses comes in.

To improve this situation, China needs to get stronger and the US dollar needs to weaken, with a positive impact on emerging market currencies and their fiscal positions with dollar-denominated debt. After another hawkish speech by Federal Reserve Chair Jerome Powell this week, a near-term reprieve seems unlikely.

It’s hard to like retail in South Africa

The retail sector in South Africa isn’t easy to feel excited about. Consumers are under extraordinary pressure and the situation doesn’t seem to be getting much better. Every trip to the petrol pump feels like attending a training camp against the Bok front row.

Truworths is the latest casualty in this story, with a sales update for the 17 weeks to 29 October that reflects concerns in the South African business. Luckily, the UK business is doing very nicely at the moment, so the group-level results look more than presentable with sales growth of 10.9% year on year.

Speaking of the UK, the Office business achieved 18.9% sales growth in pounds, which translates into 38.8% growth in rands. That’s obviously a huge help when Truworths Africa (primarily South Africa) could only grow sales by 1%. With inflation at 9% and comparable store sales falling by 2.2%, this suggests a double-digit decline in local volumes.

It’s always interesting to compare online sales penetration across the two markets. In the UK, Office’s online sales are 45% of total sales. In Truworths Africa, that contribution is just 4.7%.

Keep an eye on Clientele

After several months of trading under a cautionary statement, Clientele announced a merger with 1Life Insurance. The structure is that Clientele will acquire 1Life from private insurance giant Telesure, paying for the acquisition by issuing shares. This is why I see this more as a merger than a traditional acquisition.

Telesure will own around 26% of Clientele after this deal, which is a meaty stake. I can’t help but wonder if this is merely the first step in the dance. Could Telesure be looking at Clientele for further corporate activity in the form of a take-private or perhaps a listed vehicle well positioned to hold more of Telesure’s businesses?

At the moment, that’s just speculation. We can also only speculate about why the group CFO stepped down shortly after the announcement of this merger. Worst of all, he’s on his way out with just one day’s notice despite years of service to the group.

That’s never a good look. DM

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 R29.

DM168 front page


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