CA&S: The Botswana treadmill

Thanks for bearing with me while I make so many changes to the platform. I remain committed to building in public and delivering the best possible product to you.

The deep dives are proving to be very popular. I’m enjoying doing them and there’s a lot to learn. I’ve included the links to both the banking and mining ones below:

My plan is to release a deep dive, new video or something of significance every day. I know you’re busy, so I’ll never waste your time with fluff. But there will always be something new for you to read or listen to in Ghost Mail.

Then, to address the concerns about the disappearance of Ghost Bites, I have a happy medium to offer you. Ghosts are all about mediums, aren’t they?

Each day, there will be a block in the mailer of 300 - 400 words that will bring you a narrative account of what I’ve seen on SENS. It will give you a great idea of the focus areas and key numbers.

I’m also figuring out the cadence of the Ghost Bites podcast, but I’ll keep you informed on that.

There’s one more thing that needs to be settled: the sending time of the mailer. When I first started Ghost Mail, it went out at 6am. Because Ghost Bites became so impossible to manage, the mailer started going out at 9:15am. The latest I would ever aim for is 9am, but I’m questioning whether that’s the right approach. Please vote in the poll below:

You’ll find the new Ghost Bites block below, as well as a number of interesting podcasts and the daily market update by Shaun Murison.

Also be sure to check out the latest DealMakers content. Aside from the usual summaries of M&A and corporate finance deals both in SA and on the continent, there are also pieces on hostile takeovers and private equity.

Have a lovely start to your weekend. We will see you on Sunday for Weekender!

ASP Isotopes announced that Renergen has started the commissioning phase of the Phase 1 helium plant. They are promising that the facility will ramp up to nameplate capacity during the second half of the year. They’ve also assured the market that big things are coming re: the commercialisation of isotopes.

If ASP Isotopes was a Tinder profile, you’d be worried about whether it’s all too good to be true. The market isn’t exactly buying the story either, with the share price down 24% over 90 days. Over the past 7 days, it’s down 12%. That’s a bad week!

Is it a valuation issue, with the market cap of R8.3bn already baking in significant expectations? Is it simply a lack of belief in the underlying assets? Is it because of all the complex underlying structures?

It’s probably a combination of all of these things. It’s also an interesting risk/reward setup, assuming the company delivers on the promises in the second half of the year. But if they don’t, then there’s plenty of room to fall from that market cap.

Then, CA&S released results for the six months to June. The company values the Ghost Mail audience and has placed them on the website for your convenience. Please do check them out.

CA&S had a tough period, something you can immediately tell when the word “resilient” is used prominently. Those who are familiar with the company won’t be surprised to learn that the pressure point is Botswana, where the destruction of the mined diamond industry is being felt the hardest.

Botswana contributed 39.4% of EBIT in the prior interim period. It’s now down to 34.7% of EBIT, as segmental profitability has fallen by nearly 10%. This is why I think of CA&S as being on a Botswana treadmill, as they need to scale the platform and diversify away from this key risk as quickly as possible - but without sacrificing quality or doing poor deals. It’s not an easy situation.

South Africa is the second-largest segment at CA&S, contributing over 30% of EBIT and growing by 16.9%. They’ve executed a couple of bolt-on acquisitions in our market recently. I expect to see more.

As you’ll see in the detailed results, management is expecting a stronger second half. They have an overall narrative of “broadening the platform” - a nod to the need to diversify. HEPS growth of 5.9% in the interim period was impressive, but can it be maintained?

Finally, Exxaro released interim financials. Although revenue climbed by 7%, there was a nasty 20% decline in HEPS for the six months to June. Coal EBITDA was up by 5% and the renewable energy assets grew EBITDA by 2%, but group EBITDA was flat due to acquisitive activity.

Below that line, a sharp decrease in equity-accounted income (especially from Sishen Iron Ore Company) led to the disappointing outcome for HEPS.

That’s it for this refined version of Ghost Bites. Please check out the excellent podcasts below!

Thirty year yields are almost back to the levels seen before Treasury Secretary Scott Bessent announced an intervention in the bond market to buy more long dated government debt.

The dollar index continues to trade at three month lows while US equity markets traded weak into the close. Weakness in US markets was more broad based than the recent tech sector losses seen after retail stalwart Walmart posted weaker than expected earnings.

Asian markets are trading mixed this morning.

Gold and metal prices have continued to gain, supported by the softer dollar. Oil prices are trading sideways overnight but remain elevated as the US threatens tougher economic sanctions on Iran, with escalation rather than progress continuing to be the order of the day in the Middle Eastern war.

The rand is firm against a softer greenback and we are expecting a flat to slightly positive open for the JSE All Share Index, supported by gains in precious metal counters.

This update is provided by Shaun Murison, Senior Market Analyst at randswiss.com. Connect with him on LinkedIn here and follow him on X here.

Key Indicators: 

USD/ZAR R16.08/$ | US 10yr 4.71% | Gold $4,550/oz | Platinum $1,884/oz | Brent Crude $93.28