Phantom Shares is my weekly summary of the more interesting stories and themes from the prior week on the JSE. It is first published in the Daily Maverick 168 newspaper on a Saturday and then in Business Maverick each Monday. It is reproduced here with the permission of Daily Maverick.
Renergen keeps the hype coming
The natural gas and helium business certainly knows how to work a crowd. With an investor relations strategy that keeps Renergen at the forefront of the retail investor revolution, the company has dished up perhaps its most colourful announcement to-date.
There’s a Delaware company. There’s a 19-year sale agreement that doesn’t actually commit the purchaser to anything. There’s a famous survivor of a terrible boating accident. That’s not all folks – there’s even a blockchain solution that will be provided by Purple Group!
The idea behind all this pomp and ceremony is to create a spot market for helium, which would allow Renergen to sell helium at a spot price rather than negotiated prices under supply agreements. It’s clearly an attempt to raise cash in the short-term as well, with pricing incentives for Argonon (the Delaware company that will create the spot market) in place until 30 November 2021. If this works, the cash will be used for further drilling at the Virginia Gas Project.
The blockchain technology will be used to track and manage the helium units as they are traded.
Transnet letting the team down
Sadly, coal business Thungela has highlighted that rail performance at Transnet Freight Rail has deteriorated in the second half of 2021. With coal exports as a major contributor to the relative strength of the rand in recent months, this is a major concern. Cable theft and rail interruptions have been widely reported on.
Just to add some spice to the mix, Transnet has also been dealing with fires in Richards Bay and Durban, although these terminals have nothing to do with exporting coal. The impact has been on bulk exports from Richards Bay and potentially grain exports from Durban, although Transnet hopes to fix the damage in Durban before the next vessel arrives on 26 October.
Car rental back in the green
Automotive retailer CMH posted a resounding interim performance, with revenue almost back to 2019 levels and profitability well ahead of pre-Covid periods thanks to extensive cost cutting over the pandemic. CMH is now a lean mean dividend machine, with operating margin up to 4.65% and an interim dividend of 110 cents per share.
CMH is trading on an annualised yield of over 8%. The company has historically traded at high yields, with investors believing in the immediate cash flows but not necessarily in a long-term growth story.
The most interesting nugget from the interim result is that the car hire business (First Car Rental) is profitable again. Profit before tax of R46 million off revenue of R195 million is an impressive profit before tax margin of 23.5%. This result was assisted by a strategic relationship with Safair, which was the only airline that got through the pandemic without too much hassle.
The car hire businesses in South Africa survived the pandemic by decreasing the size of their fleets, with strong used car prices as a literal lifesaver over the past year. In the year to February 2021, CMH raised a net R115 million by resizing the car hire fleet. In the six months to August 2021, the fleet was grown with net purchases of R33 million. Asset utilisation still looks strong, with an annualised return on assets of around 10.7% after making provision for taxes on car hire profits.
What’s in a name?
On a lighter note, there were some highly unusual names on SENS this week. In the same way that some parents shun the most common names for their children and go with wild and wacky options instead, we saw Omnia selling its stake in Umongo to Orkila South Africa, a wholly-owned subsidiary of Azelis.
It sounds like a fantasy movie. For Omnia’s 81% stake in Umongo (the distributor of Chevron products in South Africa), the estimated price is R1 billion. The business generated a profit before tax of R71 million for the year ended March 2021, so I can see why Omnia has jumped at the opportunity to sell this non-core asset at this price. There’s potentially another R90 million or so that Omnia could receive if an option is exercised over the remaining 9% that the listed chemicals group will hold in Umongo.
With Omnia trading at a meaty valuation, the market wasn’t as excited about this deal as the Omnia team seems to be. The share price was down around 4.0% on the day.
To stick with the theme of unusual names, we can look at international mining group BHP’s bid for Noront Resources in Canada. By offering a higher price than competing bidder Wyloo, BHP hopes to secure ownership of resources like Black Thor, found in the Ring of Fire.
None of this is made up. Truth can be stranger than fiction when it comes to the markets.