The Finance Ghost – the ‘chart crimes’ that give a skewed view of the numbers

23 Apr 2023

Here’s news for anyone who was unsure: listed companies are skilled at presenting results in a positive light. Numbers tell a story and management teams need to tell the right story to support the share price (and their bonuses).

Clever wording and “chart crimes” (as the saying goes) are frequently used to create a skewed view of the numbers. Equity analysts then unpick the narrative and give a more objective view, which the market tends to listen to.

Need an example to clarify? Enter Altron’s latest announcement, which makes creative use of innocent-sounding terms like “normalising” and “once-off adjustments’’. Such adjustments are fine when they are sensible, such as Clicks adjusting for vaccines when presenting retail sales growth. Others are not fine, like Altron trying to convince us that a potential credit loss when servicing the public sector is something unusual.

If you cut through the corporate speak, you’ll find a provision of R134-million raised against an amount owed by the City of Tshwane, which is currently in an arbitration process. The second adjustment is even better, with R31-million in impairments of inventory pertaining to a project that ended up being smaller than in the original tender. Really now, since when was inventory or accounts receivable risk an unusual item?

Last, there’s an adjustment that relates to R104-million worth of impairments on Altron Document Solutions, the sale of which fell through in this period.

How much of a difference does it make? With the adjustments, Altron’s Heps grows by between 8% and 28%. Without them, Heps plunges by between 14% and 32%. When the adjustments are responsible for such a large gap, they need to be treated with extra suspicion.

The share price dropped by 4.9% after this announcement but recovered to end the week flat. Volatility shows that the company’s performance isn’t easy to understand.

Clicks: are investors still as loyal as ClubCard members?

The Clicks shareholder base is a clique of mostly international investors, who for some reason want to pay a high multiple for shares in a retailer trading in a country that offers slow growth and little electricity. I think South Africa offers plenty of opportunities, but not if you pay a silly multiple.

The Clicks share price is down by about 17% in the past 12 months, so perhaps the market is starting to wake up to the realities of how hard it is to keep growing. Clicks is still moving forward, for now, continuing to win market share across categories.

Joe and Jo-Anne Public are also fans of Clicks, with the company surpassing 10 million Clicks ClubCard loyalty members.

The strength of the core business and its loyalty programme means that Clicks is a natural acquirer of competing and adjacent businesses. A good example of the former is M-Kem in Cape Town, Mr M’s famous 24-hour pharmacy, which the local community loves.

If my local Clicks is anything to go by, this acquisition will give that community an exciting opportunity to wait for ages in a queue at any time of the day or night.

Read more in Daily Maverick: Glencore, Rebosis and Harmony – everybody loves a garage sale

Perhaps the acquisition of Sorbet will help to ease the wait. Take a ticket, head to the in-store salon and get six different beauty treatments before finally making it to the counter. There are no salons for now, of course, but Ulta Beauty in the US uses a salon model to get people into the stores rather than a pharmacy model. I would not be surprised to see Clicks experiment with a Sorbet store-in-store model once the acquisition is completed.

Nu-World: old consumer problems

Durable goods are notoriously cyclical, as consumers can easily defer the purchase of a TV or dishwasher when times are tough. It’s even harder to justify this spending when they know they won’t be able to switch it on half the time (thank you, load shedding Stage 6).

It feels like Nu-World shareholders should be in a new world of pain since the release of detailed interim results. With revenue down by 15.7% for the six months ended February 2023, Heps has halved and the outlook is not great. Despite this, the share price is only down by 11% this year. If you go back a year, you’ll see a much larger decline.

If consumers aren’t buying TVs, then what are they doing with their DStv subscriptions? I don’t see this as a positive read-through for MultiChoice. 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.

Categories:

Tags:

DM is much better if you are signed in...

Business Maverick

Clicks: are investors still as loyal as ClubCard members?

Nu-World: old consumer problems