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Bidcorp proves it can take the heat in the kitchen; MTN’s moment in the sun; Ellies’ shot in the dark

Bidcorp proves it can take the heat in the kitchen; MTN’s moment in the sun; Ellies’ shot in the dark
The Finance Ghost
By The Finance Ghost
5 Feb 2023
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The past few months have had all the ingredients for disaster, yet Bidcorp has delivered results that are more than slightly palatable.

Clearly, after months of takeaways and isolation, even the most cash-strapped consumers have been desperate to eat out. 

A cocktail of consumer pressure and high energy costs has been causing margin challenges for restaurants. Although Bidcorp would feel some of this cost pressure in putting its own increases through to its customers, the reality is that top-line growth at restaurants has been riding a wave of strong consumer demand and that’s where Bidcorp plays as a food services business.

For the six months ended December, headline earnings per share were between 43% and 49% higher year-on-year, implying a range of between 960c and 980c. For context, the previous record interim performance was only 714c per share, achieved in 2019.

The share price has been on a meteoric rise, which is always dangerous when a company trades at a significant earnings multiple. When you miss these jumps, it’s risky to try to chase them.

Shot in the dark for Ellies


With most industrial companies on the JSE typically trading at mid-single-digit price/earnings multiples, it’s a little worrying to see Ellies agree to pay a 10x multiple for Bundu Power, an alternative energy business that is expected to make profit after tax for the year ending February 2023 of R20.4-million.

Thanks to Eskom, this is clearly a high-growth industry. Of course, that applies to everyone in this space, so does Bundu Power have what it takes to compete sustainably and justify a premium valuation?

With a purchase price of R202.6-million versus net assets in the business of R48.7-million, that’s a lot of goodwill. Ellies either has a lot of faith in the brand or is desperate to get a foothold in this industry.

To help shareholders to sleep at night, there’s an earn-out structure that spreads out a substantial portion of the purchase price based on the company achieving profit targets.

It’s also worth remembering that Ellies had little choice but to announce a meaningful deal, as the core business has been dwindling.



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MTN Nigeria’s moment in the sun


After a strong run during the pandemic, MTN has a more manageable balance sheet. That’s just as well, because repatriating cash from Nigeria isn’t an easy experience. 

Just ask Nampak, whose balance sheet is broken, largely because cash profits cannot be repatriated from Nigeria at anything close to the official exchange rate. 

This leads to substantial forex losses being recognised, a major driver of Nampak’s need to raise R1.5-billion from shareholders.

The good news for MTN is that its African subsidiaries are worth investing in, so they don’t need to serve as cash cows for the broader group.

With an earnings before interest, taxes, depreciation and amortisation (Ebitda) margin of 53.2% in Nigeria and growth in service revenue of 21.5% in 2022, the risk-reward opportunity in Nigeria remains interesting for MTN.

With Ebitda up by 22% and capital expenditure 23.5% higher, the cash-hungry nature of a telecom infrastructure roll-out is clear.

MTN Nigeria reinvests 25.1% of its revenue in capital expenditure, which is just as well because we know that getting the cash out of the country is expensive.

Vodacom quiet regarding profits


Normalised revenue growth of 4.7%. Is that enough to protect margins? We probably know the answer, even if Vodacom kept quiet about profits in its latest quarterly update.

With increased energy costs and inflationary pressures in general, the telcos are taking strain. Rolling blackouts are a huge issue in South Africa, driving substantial costs just to keep the towers on (and the batteries safe). 

South African revenue grew by 5% in this period, which still sounds like a below-inflation number.

The Vodafone Egypt deal has closed and those numbers were consolidated in December (and excluded from normalised revenue growth). This is an important step in diversifying Vodacom’s business.

The rite choice?


Shoprite continues to impress, with store formats that resonate with customers across the income bands. In the six months ended 1 January 2023, Checkers and Checkers Hyper were up 16.9% and Shoprite and Usave grew by 15.1%.

Thanks to a record Black Friday and festive season, capping off 46 months of uninterrupted market share gains, the Supermarkets RSA segment posted like-for-like growth of 11.1%.

This is the second interim period in a row of like-for-like growth above 11%, meaning that Shoprite is growing volumes even during high inflation.

It’s not all good news, mind you. As the headlines screamed all week, Shoprite spent a spectacular R560-million on diesel for generators over this period.

If Stages 5 and 6 continue, even Shoprite’s business is going to struggle, let alone the likes of Astral Foods and RCL, which both released tough updates based on the impact of power cuts on food production.

Without some kind of solution at Eskom, food affordability is going to become an even bigger crisis in South Africa. 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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