When interest rates are high and inflation is putting pressure on balance sheets, bankers enjoy themselves more than shareholders in many operating companies. The extent of this problem varies.

In a perfect world, you want to see no debt on the balance sheet in an environment like this. At the other end of the spectrum, we find the likes of Motus and Super Group. Car dealerships cannot operate without debt, as they have so much money tied up in metal on the showroom floor. This isn’t conducive to success when interest rates have gone up substantially.

At Motus, for example, revenue was up by 11% but Heps has fallen by 27%, with net debt-to-Ebitda increasing from 1.6x to 2.1x and net finance costs more than doubling to R1.1-billion. The South African business is struggling there, although UK and Australian new vehicle sales at least give some cause for hope.

At Super Group, revenue increased by 11.9% and Heps fell by 16.2%. The Dealerships UK business bore the brunt of a sharp decrease in used car prices towards the end of 2023, and Motus suffered the same problem on the used side.

Long story short: be careful of business models that use substantial debt in this environment. It might juice up return on equity in the good years, but it can quickly eat up any dividend growth in tougher years. And in case you plan to take the clever approach of buying banks to get on the right side of this equation, just remember that slow overall economic growth blunts the attractiveness of these businesses. You have to pick your bank carefully.

FirstRand is a good example of a mediocre performance, with the dividend up by 6% for the six months to December.

Although net interest income grew by 14% (as you would expect if you looked at corporate balance sheets and considered retail customers as well), non-interest revenue only grew by 4% and impairments were 28% higher.

Standard Bank has a different story to tell, waving its flag all over Africa and enjoying those higher-growth economies. Although we only have a trading statement to work from at this stage, we know that Heps is up by between 23% and 28% for the year ended December 2023.

Even then, the Standard Bank share price is only up about 9% in the past year, so much of this has been priced in.

CA Sales Holdings: there’s hope for local stock pickers

In a sea of bad news for JSE-listed companies, CA Sales Holdings reminds us that you can still make money on the local market. The share price is up by a beautiful 59% in the past 12 months, driven by consistent strategic execution and a focus on winning market share.

The name CA Sales Holdings won’t tell you much about what the company does — and no, it has nothing to do with chartered accountants. The group is all about helping product owners of fast-moving consumer goods to reach their markets via retailers. Getting your product through the logistics systems and on the shelves isn’t as easy as you might think.

With Heps growth of 23% to 28% in the year ended December 2023, CA Sales Holdings is doing a tremendous job of winning in its chosen markets.

Spur had a great festive season, so who didn’t?

If you read recent property updates, you’ll see that the festive season was won by apparel retailers. Everyone else struggled, including restaurants. I was therefore surprised to see that Spur managed turnover growth of 10.4% for the six months to December. Even if you split out the Doppio Collection acquisition (as you should for comparability), the increase was 9.0%.

That was good enough for a 15.8% increase in the interim dividend, as there’s no debt on the balance sheet and so the pesky banks don’t get a seat at the table.

This does pose a question: if Spur did well in that period and mall owners have suggested that restaurants struggled, should we be nervous about the next numbers from Famous Brands? Only time will tell. DM

This story first appeared in our weekly Daily Maverick 168 newspaper, which is available countrywide for R29.