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The Finance Ghost: How investment properties in Joburg’s CBD outperformed London’s West End

The Finance Ghost: How investment properties in Joburg’s CBD outperformed London’s West End
The Finance Ghost
By The Finance Ghost
6 Nov 2022
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Success on the market is all about what you buy and how much you pay for it.

Would you rather own a property in London’s West End, or an apartment in the Johannesburg or Tshwane CBD? Once you’re done howling with laughter, I’ll point out that the answer isn’t as obvious as you think it is. Success on the market is all about what you buy and how much you pay for it.

Real estate investment trust company Octodec rallied 9.3% on the day of its results. About 55% of its income is derived from Gauteng’s CBD areas, with residential income contributing 31.7%. This makes Octodec unusual in the market.

The year ended August was one of recovery, with distributable income after tax up by 30%. A dividend per share of 130c means the fund was trading on a trailing yield of 13.1% once the share price settled on results day. This is a substantial yield, reflecting the risks in the portfolio.

The discount to net asset value (NAV) per share of 57.5% remains enormous. This provides a strong clue that the long-term share price chart isn’t pretty, as some investors must have paid a price close to NAV at some point. Sure enough, Octodec is down 47% over five years.

In 2022, though, the share price is up 20.7%! Yes, inner-city apartments far outperformed the world’s finest companies this year. They also outperformed London’s West End.

EOH capital raise is upon us


I’ve previously speculated that a capital raise at technology services company EOH would be inevitable. The debt pile was so high that the proceeds from sale of assets couldn’t make a dent in time, with losses mounting just to service the interest and keep the lights on.

The share price has lost 40% of its value this year and the market cap is about R725-million. This gives important context to a capital raise of R600-million as this is a highly dilutive raise.

The plan is to raise R500-million through a rights offer and R100-million through a specific issue of shares to Lebashe Investment Group. I’m interested to see who the underwriter of the rights offer will be, as such highly dilutive capital raises are usually only successful if a major new investor comes on to the register by acting as underwriter.

Murray & Roberts’s nightmare


Even EOH looks like a terrific investment this year compared with Murray & Roberts, after the construction group shocked the market recently with the news of a ­collapse in profitability.

The problem isn’t in the mining platform, where a strong outlook for most commodities continues to drive growth in investment and exploration by mining companies. The order book and the near-term pipeline are strong, and projects are being delivered in line with expectations.

The power, industrial and water platform is loss-making, but too small to really hurt the group. There is great hope of increased infrastructure spend in South Africa, as this would be a major source of orders for Murray & Roberts.

No, the disaster has happened in energy, resources and infrastructure. There are, in fact, two disasters: Traveler in the US and Waitsia in Australia, with such large cost overruns in these projects that profits booked in previous financial years need to be reversed. This will take the entire group into a loss-making position in the six months ending December 2022. 

To make matters worse, there are now cash-flow pressures in this platform that seem to be spilling over into the broader group. 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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