The Finance Ghost: The market lowdown on Motus, Super Group, big banks, CA Sales and Spur

When interest rates are high and inflation is putting pressure on balance sheets, bankers enjoy themselves more than shareholders in many operating companies. The extent of this problem varies.

In a perfect world, you want to see no debt on the balance sheet in an environment like this. At the other end of the spectrum, we find the likes of Motus and Super Group. Car dealerships cannot operate without debt, as they have so much money tied up in metal on the showroom floor. This isn’t conducive to success when interest rates have gone up substantially.

At Motus, for example, revenue was up by 11% but Heps has fallen by 27%, with net debt-to-Ebitda increasing from 1.6x to 2.1x and net finance costs more than doubling to R1.1-billion. The South African business is struggling there, although UK and Australian new vehicle sales at least give some cause for hope.

At Super Group, revenue increased by 11.9% and Heps fell by 16.2%. The Dealerships UK business bore the brunt of a sharp decrease in used car prices towards the end of 2023, and Motus suffered the same problem on the used side.

Long story short: be careful of business models that use substantial debt in this environment. It might juice up return on equity in the good years, but it can quickly eat up any dividend growth in tougher years. And in case you plan to take the clever approach of buying banks to get on the right side of this equation, just remember that slow overall economic growth blunts the attractiveness of these businesses. You have to pick your bank carefully.

FirstRand is a good example of a mediocre performance, with the dividend up by 6% for the six months to December.

Although net interest income grew by 14% (as you would expect if you looked at corporate balance sheets and considered retail customers as well), non-interest revenue only grew by 4% and impairments were 28% higher.

Standard Bank has a different story to tell, waving its flag all over Africa and enjoying those higher-growth economies. Although we only have a trading statement to work from at this stage, we know that Heps is up by between 23% and 28% for the year ended December 2023.

Even then, the Standard Bank share price is only up about 9% in the past year, so much of this has been priced in.

CA Sales Holdings: there’s hope for local stock pickers

Spur had a great festive season, so who didn’t?