In today’s Industry news: Sasol Writes off R100 BILLION, Cell C Stores to close ½ its stores and More!
1. Sasol Writes off R100 Billion in Asset Value
Sasol revised the value of their assets and shaved off about R112 billion in impairment charges. Quick run: What are impairment charges? An impairment charge is a non-cash expense (there is no real transaction for it, like depreciation). It is incurred when we revise the value of our assets and find that the value of the assets on the books is more than the value the asset can feasibly produce - in an old saying, the asset book value is writing cheques the market can't cash. Every time there is something that happens that affects business performance, the business will "test for impairment" to see if there is any change in the economic value expected from the asset.
Not only impairment charges, Sasol also had Currency Translation losses of R7.4 billion, unrealised losses of R4.8 billion on their financial instruments and derivative contracts. as well as about R3.9 billion in depreciation from the Lake Charles Chemical Project alone. That's a lot of billions... In losses! Obviously, this leads to a net loss but even worse, loss per share (as opposed to earnings per share) are expected between R146 - R149. That's massive
So what does this mean for you and your portfolio? Many large scale investors are likely going to pull out of Sasol (perhaps temporarily, and it was expected so these losses might already be reflected in the current share price to some extent) smaller investors are also likely to pull out following their mandate or the trading pattern of the bigger guys. All of this will likely drive a major share price drop. It will be worse if Sasol misses already bad estimates on losses by announcing even bigger losses. I don't expect any dividend payout, and I say that because banks in Lebanon recently borrowed money to pay dividends - mind blowing!
Source: Engineering News
2. Property dividends in 2020? Lighthouse, Are You Okay?
In one of the worst years for commercial property, a silver lining has emerged. Lighthouse Capital, formerly known as Greenbay Properties, has set out to pay dividends. Lighthouse Capital owns about 10% of UK mall owners Hammerson PLC. Lighthouse seemingly wants to acquire Hammerson as well. This comes under the light of Intu Properties going south with exposure to UK commercial property.
Now here's why this is quite a thing:
Lockdown regulations have almost completely hammered the game of property companies. Stores battling to open or make sales translates into battles to pay rent (worst case scenario is store closure), and eventually affects revenue. Retail fashion has been on a major store closing streak and this is no good news for mall owners.
E-commerce is winning the fight. Intu Properties cited the success of e-commerce as a major factor contributing to the demise of brick and mortar stores. Hence, store closures in malls are not uncommon
Hammerson really isn't doing well. They are already looking for £550 million by issuing rights, and selling assets (rights are covered in "A Little About Restructuring"). Financially, it's an opportunity for Lighthouse because Hammerson is at a discount (heavy loss in market value may have much to do with it) but economically, it doesn't make sense as yet. Perhaps we will hear more insight in the near future
3. Cell C Closes Up Shops
Back at it again with restructuring, SA mobile network operator Cell C has announced that it could possibly close down about 128 stores (more than half of their stores across the country), impacting 546 employees in the process. All of this is part of the plan to retrench 960 people announced in June 2020. The nature of the SA retail environment (and Covid-19 as of recent), with ever-shifting consumer preferences, had put such immense strain on Cell C's performance, that they’re revising their whole operational model and are set to make changes to cut costs.
4. Are We Going to Paint South Africa Orange?
French telecommunications giant and headline sponsor of African continental football competitions has expressed interest in launching in South Africa. Sensible, if you consider that they have presence in 18 countries, one of which is right next door - Botswana. This is interesting because one question raised in industry is "Will they buy some of MTN?"
I know, why MTN right? Well, they have been good corporate friends in Africa. They have launched a mobile payment company together, and are key stakeholders within a large group of companies working on one of the most ambitious projects on the continent - building Africa's largest undersea internet cable.
However there's a more interesting prospect: Blue Label Telecoms, who bought Cell C a few years ago and are struggling to realise a return, might be a viable option, with Cell C being the target of course. Cell C isn't doing well, and that could make it a target for a company wanting to enter the market because it'll be cheap, yet at the same time possess an established infrastructure and a customer base. Although Stephane Richard (Chairman of Orange) did not explain or comment on their entry approach, these two options are seemingly the most viable.
(My opinion: Just buy Cell C guys. You can literally negotiate so many discounts).
Author: Nkanyiso Nyawose