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The Finance Ghost — The market lowdown on AB InBev and Lesaka Technologies

The Finance Ghost — The market lowdown on AB InBev and Lesaka Technologies
Illustrative image: AB InBev’s headquarters in Bremen, Germany. (Photo: Focke Strangmann / EPA-EFE) | Lesaka Technologies is boosting growth through acquisitions. (Photo: Lesaka.com) | A general view of British American Tobacco South Africa (BATSA) in Cape Town. (Photo: Ziyaad Douglas / Gallo Images)

While AB InBev’s underlying earnings per share are on the up, lower interest rates would stimulate bigger volumes. Over at Lesaka Technologies, meanwhile, its latest acquisition has scaled it further into profitability 

AB InBev is one of the few sin businesses on the JSE. Apart from gambling stocks, the other is of course British American Tobacco (BAT). The thesis for investors is that these are defensive stocks, with those using the products willing to pay nearly anything for them. The truth is more nuanced than that.

The global health trend isn’t good news for either these stocks, although we can surely all agree that a beer is better for you than a cigarette. This puts volumes under what feels like eternal pressure at BAT, as pricing increases take revenue growth into the green.

Seeing a similar pattern at AB InBev comes as a surprise, though. Volumes are down 0.6% for the first quarter of 2024. Total revenue is up 2.6% as pricing increases and the mix effect – so-called premium­isation – have driven only modest positive growth. The revenue might not be there right now, but at least AB InBev is finding ways to expand margins.

Normalised ebitda is up 5.4%, with a normalised ebitda margin expansion of 90 basis points to 34.3%. This is good enough for underlying earnings per share to be up 15.4% year on year.

It would do a lot of favours for the group if interest rates came down. The benefit of lower financing costs is one thing, but the even more important win is that consumers would be paying less to banks and thus have more money for having fun.

Lesaka scales into profitability – with more to come

Lesaka Technologies is a perfect example of how a listed platform can be used to ­create a large group in a relatively short space of time. Of course, this means inorganic growth or the joy of acquisitions. Within a clearly defined strategic framework, this strategy can be very powerful.

Lesaka has had little choice but to scale because the platform was far too expensive for the businesses that were in there. After the acquisition of the Connect Group in 2022 and the footprint that it brought to the group, Lesaka has followed it up with a deal to acquire Adumo for R1.59-billion.

Although this is a smaller deal than the Connect Group, the magic here is that Lesaka is settling the bulk of the consideration (about 85%) with the issuance of listed shares.

As a further sweetener to this story, the shares are being issued at a premium to their traded volume-weighted average price. This is a great outcome.

Adding Adumo to the Lesaka group creates a powerful ecosystem of 119,000 merchants and more than R250-billion in annual payments going through the group’s operations. They will have 3,300 employees in five African countries.

The share price will be given further support by the Q3 2024 results that reflect positive operating income of R15-million versus a loss of R33.2-million in the comparable quarter.

Although the group is all about “adjusted ebitda”, like any good tech firm (and you have to be careful with those adjustments), it’s good news that net debt to adjusted ebitda has reduced from 4.2 times to 2.6 times – a far more palatable level.

The acquisition of the Connect Group put plenty of debt on the balance sheet, which is why it’s such a great outcome that the sellers of Adumo were willing to take a large portion of the price in shares.

Speaking of the sellers, Lesaka will welcome Apis Growth Fund and African Rainbow Capital to the shareholder register as part of this transaction.

This represents a major step forward for the group. DM

This story first appeared in our weekly Daily Maverick 168 newspaper, which is available countrywide for R35.

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