The Finance Ghost: JSE delistings continue, with Mediclinic set to disappear

By The Finance Ghost

4 Sep 2022

We aren’t used to seeing big names leaving the public market, yet this trend is coming through strongly.

Mediclinic looks set to disappear, with an offer by Remgro and the family behind Mediterranean Shipping Company. PSG has collapsed its holding structure, unbundling most of its assets to shareholders. The latest names to be added to the list are Massmart and Grindrod Shipping.

Walmart has put down an offer of R62 per share for Massmart, a spectacular premium of 68.7% to the 30-day volume-weighted average price.

Taylor Maritime Investments Limited (listed in London) has made a non-binding indicative proposal to acquire all the shares in Grindrod Shipping that it doesn’t already hold. The indicative price is $26 per share.

Buy the shovel, not the gold

The gold miners have been a disappointment for many, with the gold price not rising quickly enough to offset the inflationary pressures on input costs. In such an environment, operational excellence is key to delivering decent results.

Harmony Gold has demonstrated what happens when operations don’t go well. Revenue was up by 2% in the year to June 2022, but production profit tanked by 20%. Operating cash flow was down 55%.

When investing thematically, the old saying of “buying the shovel in the gold rush” has been particularly applicable in the past year. In this case, you wanted the drill rather than the shovel. Master Drilling grew headline earnings per share (Heps) by 55.5% in the six months to June 2022, so earnings are supportive of growth in the share price of nearly 50% in the past year.

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Home improvement was so 2021

Cashbuild will confirm that people are going on holiday rather than renovating their houses, with revenue down 12% despite selling price inflation of 7.2% in the year ended 26 June 2022.

This trend is also visible at Trellidor, with a 1% drop in turnover in the year ended June 2022. That would be manageable if steel prices hadn’t increased by more than 80% in the past two years. The final dagger through the heart of the income statement was a labour court judgment that led to a provision of R32.1-million.

What is the true worth?

Even after releasing surprisingly strong results, Truworths’ share price is up less than 10% this year.

The market treats Truworths as a value stock, focusing on the dividend yield and assuming that any growth in the share price will be modest. This explains why the dividend for the 53 weeks ended 3 July 2022 of 505 cents per share equates to a strong dividend yield of 8.7%.

Some are questioning the validity of this thesis, as Truworths managed to grow sales by 6.6% on a comparable 52-week basis and Heps by 42.4%. Although there is clearly a base effect here related to Covid, expansion in gross margin was impressive.

If it can deliver another period of decent growth, the best item on sale at Truworths might be the shares themselves. 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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Business Maverick

Buy the shovel, not the gold

Home improvement was so 2021

What is the true worth?