De Beers and the diamond industry - Is the shine going off the stone?

8 Oct 2023

I’m sticking to my guns in the natural versus lab-grown diamond debate. A little while back, I wrote about how the diamond industry could be on the brink of a shake-up, similar to what the Swiss watchmaking scene faced a few decades ago in the so-called quartz crisis.

The latest news from De Beers hasn’t swayed my opinion one bit. Diamond sales are dipping with each sales cycle. De Beers is putting an extra $20-million into promoting natural diamonds and, believe me, it isn’t doing that because it wants to.

Consumers are under pressure and diamonds are expensive, especially as they are just the first act in a play about financial decimation, also known as planning a wedding. Younger generations are focused on experiences rather than material items, so many brides will happily accept a cheaper ring and a better honeymoon.

Who can blame them? Even the most seasoned gemologist really needs to concentrate to spot the difference between lab-grown and nature’s finest. Plus, the lab-grown ones come with an ESG-friendly label, which is music to the ears of the younger generation.

At De Beers, rough diamond sales hit a low note at $200-million in cycle 8 of 2023. That’s a far cry from the $370-million in cycle 7 of the same year and barely 40% of what they managed in cycle 8 of 2022 ($508-million).

Diamonds are well on their way to becoming luxury goods for incredibly wealthy people. It’s going to be fascinating to see what this means for the economics of the industry.

Pick n Pay: chilly for Summers

The curtain isn’t quite coming down for Pick n Pay yet, but if you listen closely you might hear the plus-sized lady warming up. There’s a lot to be concerned about. The old joke of “gradually, and then suddenly” seems to apply here, because Shoprite, having pulled away for a decade, is now really putting the screws on Pick n Pay.

Just how bad is it? Well, Pick n Pay is now a loss-making business, and that’s before we consider the costs of power blackouts. That’s frightening. Ex-CEO Pieter Boone was the fall guy, paying the price for years of missteps that came before him.

The family is bringing in Sean Summers, who previously ran Pick n Pay when South Africa had a bustling economy. His fame for speeding in a Ferrari is a perfect summary of what South Africa was like when he was running the show. Goodness knows that times have changed.

In the 26 weeks ended 27 August, Pick n Pay South Africa could only grow by 0.3%. That’s shocking when you consider the rate of growth at Shoprite.

Even Boxer (Pick n Pay’s recent growth engine) could only manage 4.2% growth on a like-for-like basis. Although total Boxer sales were up 16.1%, like-for-like sales (excluding new stores) is the best way to assess the performance of the business.

The jewel in the broken crown is Pick n Pay’s clothing business, which had an impressive 13.8% uptick.

Summers faces a struggle. If Shoprite is the python, Pick n Pay is the impala fighting for its life.

Calgro-wth

Diamonds might be losing their shine, but Calgro M3 is looking far more polished these days. The share price has grown by a spectacular 58% this year. We shouldn’t lose sight of the fact that the share price is down 44% over five years – as always, picking stocks is about getting the timing right.

The recovery in 2023 is the result of solid core performance and a generous share buyback programme, underlining how potent buybacks can be when a company’s stock is undervalued.

In the first half of this year, Calgro M3 delivered growth in headline earnings per share of between 28.4% and 48.4%.

The underlying drivers were a 13.5% revenue boost and repurchases of 18.6% of opening share capital. The repurchases were at an average of just R2.63 per share versus the current price of about R4.95.

To add to the happy news, cash generated from operations is in line with profit after tax, so the market liked that too. Detailed results are due on 16 October.

Trustco: there’s one in every family

Trustco reminds me of a wildly unpredictable uncle – you know, the one you would never allow to make a speech at a wedding for fear of what he might say.

In a family, these wild uncles tend to push the limits of everyone’s patience until they are given a talking-to by the head of the family. So, too, is the case with Trustco, which has just lost its tussle with the JSE.

After much fighting and enrichment of legal advisers, the Financial Services Tribunal ruled against Trustco and in favour of the JSE’s approach, leading to a public censure of the company. Of course, this didn’t stop Trustco from releasing yet another inflammatory announcement complaining about the regulator.

With a share price down 90% in the past five years, perhaps Trustco should focus less on fighting with regulators and more on actually making money. 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.

Front page P1 07 October 2023

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Business Maverick

Pick n Pay: chilly for Summers

Calgro-wth

Trustco: there’s one in every family