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Bless the pains down in Africa

Bless the pains down in Africa
The Finance Ghost
By The Finance Ghost
23 Oct 2022
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The famous Toto song of (almost) the same name paints a far more romantic view of our continent than the Stock Exchange News Service suggests.

The first bad news this past week came from Kore Potash, the company that is trying to get the Kola Project off the ground in the Republic of Congo. Pierre Oba, the minister of mines, sent a love letter that “expressed his discontent” with the progress made in developing the project (and a few other issues).

In what sounds very much like a scare tactic, two senior employees were arrested and released without charge.

This pales in comparison with the potential disaster unfolding for Gemfields in northern Mozambique. The Montepuez ruby mine is located in a terrorist hot spot and it appears that the Mozambique military is getting involved. Mining has stopped for now, driving a 6% drop in the share price on the day of this announcement.

Can car hire save the day?


CMH has been having a wonderful time in a world with elevated used-car prices and low interest rates. Interestingly, the share price has performed modestly. It has only increased by 9% in the past year, with most of the return for investors coming from dividends.

The latest commentary from CMH regarding the earnings outlook is an indication that the party is coming to an end. With a combination of rising interest rates, rolling power cuts, economic despondency, decreasing consumer confidence and pressure from manufacturers to reduce inventory levels, CMH is expecting to “weather a storm” in the short to medium term.

A mitigating factor is the strength of the car hire business. Although its revenue is only a fraction of the motor retail business, the operating margins are vastly different.

CMH’s dealerships can only generate R160-million in profit before tax from revenue of nearly R5.7-billion. The car hire business manages profit of more than R122-million from revenue of just R370-million.

With a strong tourism season expected in South Africa, the question will be to what extent the car hire business can offset a slowdown in the dealerships.



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Murray & Roberts capitulates


Construction giant Murray & Roberts shed nearly a third of its market cap in the past week. The drop this year is nearly 70%, with shares trading at May 2020 levels.

The latest value destruction was driven by an announcement that the company is once again expected to make losses.

Wording such as “especially acute” working capital requirements in the energy, resources and infrastructure platform didn’t do the story any favours.

There are genuine concerns about the ability of the company to get through these issues, with major delays in projects because of supply chain disruptions.

More beauty, less brawn


When investing in South African retail groups, it’s critical to understand that consumer spending varies drastically by product category.

For example, Clicks has been winning for years at selling health and beauty products alongside pharmaceuticals. The latest result is no different, with decent growth even if you strip out the vaccine revenue.

Cashbuild is having a very different experience, with revenue in the latest quarter down 4% year on year. Volumes are a lot lower, a function of the base effect (people spending on their homes during lockdowns) and pressures on consumer spending.

You still need shampoo and your asthma pump when you are worried about the future. You don’t need a new kitchen. 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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