Tag Archives: South Africa

Astoria Investments Ltd – Results Note – Crystalizing NAV with Optionality

Share Code: ARA – Market Cap: R537m – Discount to NAV: c.39%

Astoria Investments – Q3:24 – Results NoteDownload

Q3:24 Results: Headwinds of a Stronger Rand

  • Astoria reports quarterly but management only update unlisted valuations in the Q2 and Q4 reports. Thus, the key change over the Q3:24 period was a stronger Rand (c.9% stronger on a 12m-rolling basis and c.6% stronger versus the start of the current reporting period versus the USD).
  • With this context, Astoria’s NAV per share increased by +2.1% in USD and decreased by 3.7% in ZAR for the Q3:24 period (as compared to NAV at the start of financial year).

Astoria’s NAV components:

Commentary: ISA Carstens (Potential) Exit Proving Solidity of NAV

  • Astoria has received a non-binding offer for its stake in ISA Carstens &, along with fellow shareholders, final terms are being negotiated. While the offer is non-binding, its pricing is broadly in line with Astoria’s fair value for ISA Carstens. This gives us a great data point for the realism of management’s fair values for their unlisted investments (the 3rd-party offer aligns with Astoria’s valuation). Finally, this potentially turns c.8% of the Group’s NAV into cash which would provide management with ammo for future investment options (i.e. embeds some exciting optionality for future capital allocations).
  • Outdoor Investment Holding continues to trade well, Leatt Corp’s latest quarterly hints at a trough being reached, RECM Calibre has changed its name to Goldrush Holdings (code: GRSP), low diamond prices continue (Land is doing relatively well while Marine has its ship in dry dock for well-timed maintenance), & VCG continues corporatising and scaling.

Valuation, 12m TP & Implied Return: Discount a Little Tighter

  • Astoria’s share is trading at c.39% discount to the current NAV (Previously: 45%) once we update its NAV with current prices.
  • If we take out our calculated “HoldCo discount” of c.13.6% (Previously: 14.4%) from this NAV, we arrive at a fair value for Astoria’s shares of c.1216cps (Previously: 1204cps) or c.41% higher than the current share price.
  • Rolling this fair value forward at our Cost of Equity, we arrive at a 12m TP of c.1433cps (Previously: 1417cps) that implies a potential return of c.66% from the current share price.
Astoria Investments – Q3:24 – Results NoteDownload

Stor-Age Property REIT Limited – Initiation of Coverage – Good Stor(e) of Capital

Share Code: JSE: SSS – Market Cap: R7.2b – PE: 17.0x – DY: 7.9%

Stor-Age Property REIT – Initiation of CoverageDownload

Business Overview:

  • Stor-Age is an integrated & internally managed REIT that owns & operates self-storage properties in South Africa and the United Kingdom with a portfolio comprising of 103 properties (60 in SA operate under Stor-Age brand & 43 in the UK operate under the Storage King brand).
  • Stor-Age is the largest, market-dominant self-storage brand in SA whilst ranking 6th in the UK (the UK is an under-penetrated Developed Market based on self-storage space per capita versus other DMs).

Key Upsides & Downsides:

  • The current interest rate-cutting cycle may lower finance costs, boost valuations & increase the attractiveness of the property sector.
  • Furthermore, Stor-Age has a highly defensive product (self-storage), and the share price has been resilient through economic downturns with an excellent track record of operating and dividend growth.
  • Self-storage has high barriers to entry that includes long lease-up periods for newly developed properties and limited available properties in high-density, visible urban nodes.
  • The Group has a fast-growing, high-margin income stream of management fees from third-party property management and digital marketing platform that offer its shareholders exciting optionality.
  • Management has a pipeline of 13 properties that are expected to add 60,000m2 of GLA to its portfolio in the near term.
  • Management has decided to decrease its distributable income payout ratio from 100% to a more sustainable 90~95%, thus resulting in some downward pressure on short-term distributions per share despite expected growth in forecast distributable income.

Forecast, Valuation and Implied Return:

  • We see Stor-age as having a fair value of c.R15.50 per share based on a blended average of a discounted cash flow valuation (R15.92) and relative valuation model (R15.08); the latter is based on the valuation multiples of comparable listed self-storage peer companies.
  • Rolling forward our fair value by 12 months at our Cost of Equity (less our expected dividend) gives us a 12m TP of R15.97 per share, implying a total return of c.14% based on the current share price (R15.02).
  • We see a c.14% total return in the stock as comprising a forecast price return of c.6% and forecast dividend yield of c.8%.
Stor-Age Property REIT – Initiation of CoverageDownload

Metrofile Holdings – FY 24 Results – Disappointing but could be the Bottom

Share Code: MFL – Market Cap: R1.1bn – PE: 15.1x – DY: 5.6%

Metrofile Holdings – FY 24 – Results NoteDownload

FY 24 Results: Weaker than expected

  • Metrofile’s revenue rose only +1% with MRM South Africa’s revenue slipping -3% hurt the Group as delayed decisions by customers and slower product sales and revenues from digital more than offset good box pricing.
  • The MRM Middle East’s EBITDA margin fell as management had to fend off two large new entrants in the market, MRM South Africa’s scanning margins saw pressure from internal issues and continued weakness in Kenya saw management impair goodwill by R53.5m in this segment
  • Management has decided to wind up Tidy Files (successfully executed after year-end), triggering a R19.9m one-off in FY 24.
  • All these one-offs combined to negatively hit EPS by c.12.6cps with EPS coming in at 3.9cps (FY 23: 32.1cps) but—excluding the one-offs—the Group’s Normalized HEPS declined to 20.0cps (FY 23: 32.1cps).
  • Despite these troubles, the Group’s cash generation remained strong (R287m of EBITDA generated R309m of cash from operations), degearing continues (Net Debt dropped -9% to R537m) and the Group declared a full-year dividend of 14cps.

Our Thoughts: New CEO, revised forecasts

  • The Group has a new CEO with a solid background, the current CFO steps into MRM South Africa’s turnaround as MD of this major segment, & the Board will announce a new CFO shortly.
  • We have been relatively ruthless by lowering some long-term assumptions and downgrading FY 25E HEPS by c.-17% (but still see it recovering from FY 24’s trough earnings).

Forecast, Valuation & Implied Return: Lower discount rate

  • We see Metrofile’s fair value as 347cps (previously: 390cps), implying an EV/EBITDA of 7.0x & a PE of 21.1x; this compares attractive to Iron Mountain’s current multiples (see below):
  • The change in our fair value is less of a downgrade than our cut in earnings as the large drop in South Africa’s sovereign bond yields over the period has propped up our segmentally-driven DCF fair values (i.e. future cash flows are now worth somewhat more).
  • Rolling our fair value forward, we arrive at a total return 12m TP of 403cps (previously: 456cps), implying a high c.61% return (including dividends) from these levels.
Metrofile Holdings – FY 24 – Results NoteDownload

Sabvest Capital – H1:24 Results – Returning to Growth

Share Code: SBP – Market Cap: R2.9bn – Dividend Yield: 1.2%

Sabvest Capital – Results Note – H1:24Download

H1:24 Results: NAV Returns to Growth

  • Sabvest’s Net Asset Value (NAV) grew +3% y/y to 11786cps (H1:23 – 11465cps), management hiked the Group’s dividend to 35cps (H1:23 – 30cps), and bought back a further R51.7m shares during the period (average price of c.6893cps versus the NAV of 11786cps and the current share price of 7450cps).
  • Many of the Group’s underlying businesses recovered/grew nicely: Apex, Flexo and ITL all performed well while Corero’s share price more than doubled, and Transaction Capital unbundled We Buy Cars Holdings (JSE code: WBC).
  • On a balance, the Group’s portfolio outlook is good, its valuations are proving conservative (see ‘Thoughts’ below) and management is steadily degearing as cash is realized and/or flows centrally.

Thoughts: Exits Underscore Conservative Valuations

  • Sabvest has (1) agreed to exit Metrofile in two tranches at an above-market price (301cps), (2) received an initial R80.6m from its exit of Sunspray (at above-book at the time), & (3) concluded an exit from Rolfes that should be at a premium to its previous value in the Group’s NAV.
  • This is c.6% of assets being realized at above-book prices (proceeds should go into degearing) and it goes to evidence Sabvest’s conservative unlisted valuations.

Valuation, 12m TP & Implied Return: Discounted

  • The share is trading at a c.37% discount to NAV, which is well off from the JSE-listed peer group average discount particularly when compared based on Sabvest’s superior track record (i.e. the Line-of-Best-Fit below).
  • Using our updated NAV (with the latest market prices) we arrive at a defendable (post-discount) fair value for Sabvest’s shares of 10754cps (previously: 9817cps), which still includes a HoldCo c.10% discount against this NAV (unchanged from prior period).
  • Rolling our post-discount fair value forward, we see the Group’s 12m TP as 12616cps (previously: 11675cps) with an implied return of +69%.
Sabvest Capital – Results Note – H1:24Download

Astoria Investments – Results Note – Navigating the Rough Well

Share Code: ARA – Market Cap: R484m – Discount to NAV: 45%

Astoria Investments – Q2:24 – Results NoteDownload

H1:24/Q2:24 Results: Fully-invested with OIH Paying Dividends

  • With a stronger Rand and lower RACP (soon-to-be renamed ‘Goldrush Holdings’) and Leatt Corp share prices, Astoria’s USD-NAV and Rand-NAV softened -2.9% and -3.5% respectively.
  • During the six months, Astoria invested more into Leatt Corp (LINK), and received a legacy agterskot payout. We currently consider the Group fully invested, but dividend flows from Outdoor Investment Holdings (OIH) should provide incremental capital for deployment & compounding.
  • Finally—as per policy—management have refreshed the Group’s unlisted company valuations, which we specifically discuss in the context of their performance and their peers.

Commentary: Leatt, Goldrush & Diamond Headwinds Cannot Last

  • OIH saw broad growth (excluding Family Pet Centre), Trans Hex (Land & Marine) somewhat bucked diamond trends with good pricing, ISA Carstens showed its quality, and the Vehicle Care Group (VCG) steadily (and responsibly) began scaling.
  • Unfortunately, Leatt Corp (trading its way through excessively stocked wholesale markets) and Goldrush (loadshedding hurting EBITDA margins) saw their share prices under pressure during the period, which created some headwinds to NAV.
  • Loadshedding (appears) gone for the moment and the wholesale market for Leatt should righten itself over time, thus implying upsides in both businesses from these levels.

Valuation, 12m TP & Implied Return: Widening of Discount

  • Astoria’s share is trading at c.45% discount to the current NAV (Previously: 40%) once we update its NAV with current prices.
  • If we take out our calculated “HoldCo discount” of c.14.4% (Previously: 14.2%) from this NAV, we arrive at a fair value for Astoria’s shares of c.1204cps (Previously: 1162cps) or c.54% higher than the current share price.
  • Rolling this fair value forward at our Cost of Equity, we arrive at a 12m TP of c.1417cps (Previously: 1386cps) which implies a potential return of c.82% from the current share price.
Astoria Investments – Q2:24 – Results NoteDownload

Metrofile Holdings – H1:24 Results – Tougher than Expected Interim Period

Share Code: MFL – Market Cap: R1.1bn – PE: 8.5x – DY: 6.3%

Metrofile Holdings Result Note – H1:24Download

H1:24 Results: Headwinds constrained revenues & hurt margins

  • Metrofile Holdings reported a much tougher H1:24 period than we had expected with several headwinds either constraining revenue growth or negatively impacting short-term margins.
  • Revenue grew +2% but this below inflationary pressures (labour costs increased +11%) and EBITDA decreased 4%.
  • Higher interest rates increased the financing burden and saw HEPS for H1:24 decline 13% to 13.0cps (H1:23 – 15.0cps).
  • In line with earnings, the dividend was lowered to 7cps (H1:23 – 9cps) and management bought back 1.5m shares in the market at a c.297cps VWAP.
  • The Group’s cash flow remained exceptionally strong (R160m of EBITDA converted into R143m of operating cash flow) and debt levels remained reasonable.

Our Thoughts: Strong recurring underpin to revenues & cash flows

  • Physical and digital subscription revenues make up 62% of Metrofile’s revenue, underpinning a strong base of recurring cash generation from which management continues to build out the Group’s digital strategy, this period being no exception.
  • On this digital strategy, IronTree, cloud & digital service revenue continue growing & we expect their contribution to Group revenue mix to grow (see Figures 2, 3 & 4 in this report).

Forecast, Valuation and Implied Return: Undervalued

  • We see Metrofile’s fair value as 390cps (previously: 423cps), implying an EV/EBITDA of 7.0x & a PE of 12.9x (comparing attractively to Iron Mountain’s current EV/EBITDA of 18.9x & PE of 129x).
  • Rolling our fair value forward, we arrive at a total return 12m TP of 456cps (previously: 500cps), implying a high c.78% return (including dividends) from these levels.
  • Our short-term forecasts were optimistic & have been lowered. Yet the fundamentals remain in place for Metrofile to defend its core business while it keeps investing in faster-growing, long-tail digital services businesses that are steadily transforming the Group. See Table 8 in the report (or below) for global comparisons.
Metrofile Holdings Result Note – H1:24Download

Metrofile Holdings – FY 23 Results – Great Top-line Growth

Share Code: MFL – Market Cap: R1.3bn – PE: 9.3x – DY: 6.0%

Metrofile Holdings – FY 23 Results NoteDownload

FY 23 Results: Double-digit Organic Growth

  • Metrofile revenue grew per our forecasts at +16% y/y (+3% added via the consolidation of IronTree for the full period and, importantly, +13% of this growth was organic in nature) but EBITDA was slightly lighter than we expected at R345m (FY 22: R325m) as inflationary pressure, the full cost of the prior year’s established go-to-market team was carried and necessary IT upgrades were all carried in these results.
  • The Group bought back 10m shares, helping HEPS grow +5% y/y to 32.1cps (FY 22: 30.8cps) and the dividend was maintained at 18cps (FY 22: 18cps).

Our Thoughts: Two Large, Near-term Contract Wins Offer Upside

  • The Group’s MRM South Africa and MRM Middle East both won significant contracts during the period. While the South African one’s timing is hard to know (we have excluded it from our forecasts), the Middle Eastern contract should start generating revenue from the end of FY 24E (included in our forecasts from the start of FY 25E).
  • Note: These two contracts alone add c.+20% to Group annual revenues for the periods they occur, we cannot understate how significant they (and their timing) are to Metrofile’s next couple of financial years.

Forecast, Valuation and Implied Return: Inexpensive quality

  • We see Metrofile’s fair value as 423cps (previously: 426cps), implying an EV/EBITDA of 7.4x & a PE of 13.2x (comparing attractively to Iron Mountain’s current EV/EBITDA of 16.1x & PE of 47.8x).
  • Rolling our fair value forward, we arrive at a 12m TP of 500cps (previously: 496cps), implying an attractive c.65% return (including dividends) from these levels.
  • Given the fast growth in Digital Services over the period and the significant premium these businesses trade at in public markets, we are increasingly expecting some sort of inflection points in the coming years where Metrofile’s valuation starts to reflect the growing percentage of revenue coming from Digital Services.
Metrofile Holdings – FY 23 Results NoteDownload

Renergen – FY 23 Results – R5.7bn EBITDA on a market cap of R2.7bn?

Share Code: REN – Market Cap: R2.7bn – PE: -94.1x – DY: 0.0%

Renergen – FY 23 Results Note – Updates & ValuationDownload

FY 23 Results: Producing Cash Flows from Phase One

  • With Phase One’s LNG production started ramping up during FY 23, Renergen produced its first Liquid Natural Gas (LNG) revenues of R12.7m (FY 22: R2.6) with R11.1m coming from LNG and the balance from the now closed CNH pilot plant (FY 22: zero from LNG & R2.6m from CNG).
  • Our FY 23 cost assumptions were too heavy, and we expected a full year loss of -22.3cps while the Group only actually lost -19.86cps (FY 22: -27.73cps).

Material Updates: A Coming Year of Big Events…

  • Phase One will spend FY 24E ramping up production, & it pivotally shifts Renergen from developer to producer status.
  • The Nasdaq listing process has started with management expecting its conclusion towards the end of this year. A circular to was released detailing the issuance of equity in two tranches; the first being 67.5m shares upon Nasdaq IPO raising c.$150m with the remaining tranche being raised towards the end of the Phase Two build. This is less implied dilution than we forecast & we have adjusted our view and SOTPs for this new data.
  • Management also published a revealing “Phase Two Guidance Note” forecasting FY 27E estimated EBITDA of between R5.7bn and R6.2bn per annum. Given that Renergen’s entire market cap is currently only R2.7bn, R5.7bn EBITDA is significant!

Valuation: SOTPs & Peer Relatives Higher Than Share Price

  • Updating and refining our forecasts, we see Renergen’s current fair value at c.6400cps (previously: 6233cps) and 12m TP as a little over 7500cps (previously: 7347cps).
  • Updating the crude listed helium peer relatives (market cap/helium), Renergen remains discounted against this measure. This remains true even if we take Phase Two’s future equity raises into account and despite Renergen being more advanced than its peers in both proving and starting to produce from its resource.
Renergen – FY 23 Results Note – Updates & ValuationDownload

Sabvest Capital – FY 22 Results – Exciting Prospects

Share Code: SBP – Market Cap: R3.2bn – Dividend Yield: 1.1%

Sabvest Capital – FY 22 Results NoteDownload

FY 22 Results: Better than Expected

  • Sabvest Capital’s NAV grew 17.6% y/y to 11017cps beating our expectations, the Group’s HEPS was firm at 1591.2cps (FY 21: 1689.7cps) and management has materially lifted the dividend to 90cps (FY 21: 75cps).This was a busy period with a range of new investments from ARB Holdings, Halewood to Valemount Trading.
  • The Group’s investee companies executed various underlying investments from Apex buying into DRA Global to SA Bias’ Flowmax acquiring YG Prefab in the UK.

Thoughts: Exciting Portfolio Prospects

  • While ITL’s may be the only duller spot in Sabvest’s portfolio (longer-term, though, we are very optimistic about this group’s prospects), DNI-4PL is firing all cylinders, SA Bias is performing strongly, and Apex Partners is fast growing into a material investment for the Group.
  • ARB Holdings is benefitting from the boom in solar, Halewood and Valemount Trading both hold immense potential for profitable expansion from their positions in the RTD/beverage and pet industries respectively.

Valuation, 12m TP & Implied Return: Cheap & Growing

  • Updating the Group’s NAV for the latest market prices we arrive at a defendable (post-discount) fair value for Sabvest’s shares of 9227cps (previously: 8894cps), which still includes a HoldCo c.14.5% discount against this NAV.
  • Importantly, the underlying NAV appears to be conservatively valued and management’s track record for growth is well above average. These two factors combine favourably to form the Group’s investment appeal, particularly when offered at a discount (we estimate the share price currently offers a c.25% discount to NAV).
  • Rolling our post-discount fair value forward, we see the Group’s 12m TP as 10906cps (previously: 10511cps) with an implied return of +35%, excluding dividends.
Sabvest Capital – FY 22 Results NoteDownload

Renergen – H1:23 Results – Share Price Disconnected from Underlying

Share Code: REN – Market Cap: R3.7bn – PE: -105x – DY: 0.0%

Renergen – H1:23 Results NoteDownload

H1:23 Results: Delayed but moving swiftly forward

  • Renergen’s revenue was flat at R1.2m and the Group reported a loss of -19.31cps (H1:21 -21.05cps) as it neared production status.
  • Phase One is moments from producing gas and, although delayed against the original timeframe, this will be an exciting moment as the Group transitions from a developer to a producer.
  • Phase Two funding is progressing well, having issued shares to Ivanhoe Mines (though the larger equity deal expired), the CEF has agreed to inject R1bn into the Project, & various blue chip debt funders have expressed interest in funding up to $1.2bn of debt for the project.

Our Thoughts: Enviable Position

  • While Phase One delays are disappointing, the underlying fundamentals and attractive economics of the Virginia Gas Project remain and are further highlighted by the interest in funding Phase Two.
  • The conclusion of the well-priced CEF R1bn equity investment is a strong positive and, we believe, the expiry of the Ivanhoe equity deal is a net positive by avoiding expensive dilution.
  • Furthermore, the large pool of interested debt funders into Phase Two means that Renergen has both time to find the appropriate equity funding and the flexibility to pick terms.
  • All in all, we believe that Renergen is in an enviable position for a developer as it transitions into a fully-fledged gas producer.

Valuation and Implied Return: Share Price Disconnected from Value

  • We see Renergen’s fair value at c.6700cps (previously: 6337cps) and 12m TP c. 8000cps (previously: 7491cps).
  • With a range of fair values from c.5000cps to c.6700cps (CEF deal implies c.6600cps for REN shares), what is clear is that REN’s share price deviates substantially from even the low-end of this range.
Renergen – H1:23 Results NoteDownload