At last week’s COP27 climate summit in Egypt, South Africa signed a deal worth USD 8.5 billion deal to end its coal dependency. Currently, coal accounts for around 80% of South Africa’s energy supply. The deal, called the “Just Energy Transition Plan,” is backed by the UK, the US, France, Germany and the European Union. Under the deal, 90% of the USD 8.5 billion is to be used to decommission coal-powered plants and replace the lost capacity with renewable energy.
If you thought the announcement would frighten investors in South Africa’s coal sector, think again. As we recently pointed out, the country’s energy sector is heavily dependent on coal. Another thing to consider is that stated-owned power distributor Eskom is scandalously unreliable, having caused numerous blackouts that have harmed the South African economy. Whether Eskom can help to ensure the energy transition is an open question.
As a result, it seems that investors do not expect that South Africa will be able to turn its back on coal. On the contrary, they seem to think that coal mining still has plenty of potential - also because of South Africa’s need for it. Consider that last week, shares in South African coal mining company Thungela Resources (ISIN: ZAE000296554) gained 5.9% to ZAR 283.31 (EUR 15.97). The share had weakened in the past month, losing about 4.6%. However, if the past twelve months are viewed, Thungela’s share has skyrocketed. It is up an impressive 335% for the period.
Thungela’s fundamentals are strong. In its last financial year, sales from underground mines were up to ZAR 16.5 billion (EUR 930 million) and sales from open-cast mines ZAR 9.8 billion totalled (EUR 552 million). Its market cap now exceeds EUR 2 billion. Analysts are also still optimistic when it comes to the share’s prospects. They have set an average price target of ZAR 340, which is 20% above the share’s current market price. The analysts’ recommendations for the stock are either “buy” or “outperform.”
Investor interest in Exxaro Resources (ISIN: ZAE000084992), the other big South African coal mining company, is even stronger. Its share price gained 7.1% to ZAR 210 (EUR 11.84) last week and is up an impressive 36% for the past twelve months. The company, whose market cap is EUR 2.9 billion, had ZAR 50.4 billion (EUR 2.8 billion) in sales last year.
And despite the announcement concerning South Africa’s energy transition, analysts are equally optimistic about Exxaro’s share. Their price target is, on average, 17.7% above the current market price of nearly ZAR 258.
Lesieur Crystal (ISIN: MA0000012031), Morocco’s leading vegetable oil producer, has announced a takeover of Senegalese peer Oleosen for an undisclosed amount. Oleosen distributes vegetable oil under the brand Jaara and Lesieur Crystal’s product under license. Oleosen’s sales in 2020 totalled EUR 29 million, compared with EUR 405 million for Lesieur Crystal. Although the latter’s takeover of Oleosen, should enable it to expand its business in western Africa, the news did not really impress investors. Last week, Lesieur’s share price fell by 3.4% to MAD 340 (EUR 31.13).
Until now, Lesieur’s stock performed well due to investors’ expectations of higher inflation. Suppliers of foodstuffs and other staples tend to benefit in such an environment due to their ability to increase their prices and therefore their margins. In Lesieur’s case, it is the leading supplier of cooking oil based on sunflower, colza and olives (sold under the Lesieur, Huilor, Cristal, Oleor, Alhorra and Mabrouka brands). It also supplies body soaps (Taous brand); margarine (Magdor and Ledda brands); household soaps (El Kef and El Menjel brands); and oilcakes for cattle feeding. Analysts are bullish on the company, expecting it to increase its operating margin to 6.5% next year from 6.1% this year. That sentiment helped boost Lesieur’s stock price by 30.3% in the past three months.
However, following the announced takeover of Oleosen, investors may have soured on the Lesieur share. We don’t believe that this is due to the fact that Lesieur is using its capital to expand its business rather than return to shareholders in dividends. Rather, investors may be concerned that Lesieur did not negotiate the best possible price for Oleoson.
Let us explain why we think this: Lesieur’s biggest shareholder is Avril, a French company specialising in investments in agriculture and food processing. Avril is known in Europe for selling vegetable oil under the brands Lesieur, Costa d’Oro and Puget.
But here is the issue: Prior to the takeover, Avril was also a major shareholder in Oleosen. Lesieur will now acquire Avril’s stake in Oleosen as well as that held by French beer and wine group Castel. That stakeholding equals 90.16%. In other words, Avril controls both the seller of the stake, namely Oleosen, and its buyer, namely Lesieur. Investors are likely not happy about such inter-dealing and may lament the fact that the price of the deal has not been disclosed.
In May, South African gold mining company Gold Fields (ISIN: ZAE000018123) announced a EUR 6.6 billion bid for Yamana Gold (ISIN: CA98462Y1007). Yamana is a Canada-based precious metal supplies that is valued at EUR 4.8 billion on the Toronto Stock Exchange. Gold Fields said it was acquiring Yamana to lessen its dependence on the South African market.
Unfortunately for Gold Fields, its bid has failed. At the last minute, two other Canadian companies appeared, offering a more attractive bid. They were: Pan American Silver (ISIN: CA6979001089) and Agnico Eagle (ISIN: CA6979001089) which submitted a counter-offer that included a high cash component. “Gold Fields wanted to pay for the deal in shares,” wrote Tarik Dede, editor-in-chief of the newsletter Rohstoff-Brief. Tarik is absolutely right: Pan American Silver and Agnico Eagle’s bid proved more attractive to Yamana and its shareholders.
Moreover, investors were not enthused over Gold Field’s bid for Yamana. Since it was announced in May, its share has tumbled, falling by 28.7% to ZAR 152.40 (EUR 8.55). A large burden may now have been removed from the stock.
We do not believe in chart analysis, but this trend has become too common to ignore. Since the share of Ecobank Côte d’Ivoire (ISIN: CI0000002424) fell to a year-low of XOF 3978 (EUR 6.06) last 16 May, it has staged a bit of a comeback – although that has been somewhat turbulent. The share is now trading at XOF 4900 (EUR 7.47) – an increase of 23.4% since May. Also, trading in the stock has been quite significant, with more than a million shares trading hands on some days.
The reason for the comeback has to do with the bank’s results. A few days ago, CEO Paul-Harry Aithnard announced that in the first nine months of 2022, Ecobank’s net income was up 16.4% to XOF 28.4 billion (EUR 43 million). According to Aithnard, the increase was due to gains in Ecobank’s net interest margin and other non-interest income. These figures show that African banks have not yet been really affected by the current climate of geopolitical tension, inflation and slower economic growth.