Market notes: hospital groups recover; Sibanye goes buying
Hospital groups are in recovery
As the pandemic seems to have subsided (touch every piece of wood in reach), the hospital groups have entered the recovery room. One of the greatest investment ironies of the past 18 months was that hospital groups are poor investments during a pandemic.
The issue is that elective surgeries get cancelled, so revenues and margins take a severe knock. In a voluntary trading update from Netcare for the year ended September 2021, we learnt that about a quarter of admitted Covid-19 cases end up in ICU or high care and that 80% of acute hospital beds were allocated to Covid-19 cases at one point.
As doctors got better at treating this revolting thing, that percentage thankfully dropped. As an adjacent and concerning statistic, the legacy of lockdown can be seen in patient days for mental health: up a terrible 55.3% in the second half of the financial year versus the comparable period last year.
Moving on to the numbers, net debt was reduced by R1.1-billion in the past year and Netcare is compliant with banking covenants. The Ebitda margin is expected to be between 14.9% and 15.3%, still way down on pre-Covid levels of approximately 22%.
Other hospital groups are also reporting improved results in South Africa. There’s light at the end of this tunnel, provided we don’t suffer a significant fourth wave.
Sibanye sweating the Sens system
Neal Froneman is a busy man and Sibanye is making full use of the Sens system, with an announcement almost every day this week.
Sibanye is on a dealmaking spree of note, taking the profits from the platinum group metals (PGM) cycle and investing them into a “green metals” strategy focused on the metals that are needed for batteries.
In a $1-billion transaction in Brazil, Sibanye will acquire the Santa Rita nickel and Serrote copper mines. There’s also a deal to take a 19.99% stake in New Century Resources, a zinc tailings business in Australia.
Sibanye fancies itself as a platform business in the world of mining and resources. If Froneman can repeat his success of the past few years, then he will prepare Sibanye for a shift from PGMs to battery metals as electric vehicle adoption takes off.
There’s a Bell offer, but it’s weird
After a prolonged period of mistrust from minority shareholders, the controlling shareholder in Bell Equipment (IA Bell) has finally made an offer to take the company private.
It’s almost as though they want the deal to fail. With a price of R10 per share, the offer is at a 33% discount to the previous day’s closing price. It’s the same price at which the family agreed to buy John Deere’s stake in Bell around a year ago, which turned out to be an excellent deal for the Bell family rather than the purveyors of fine tractors.
If they were serious about taking the company private, the offer would probably need to be a lot higher. There were no irrevocable undertakings from major shareholders, so there’s no real indication of this deal going ahead.
As an aside, John Deere was one of the positions in Cathie Wood’s Space Exploration and Innovation ETF when it launched.
If Wood is hoping that Deere will build space tractors (?!?), then the farming enthusiasts will need to jack up their dealmaking and capital allocation skills over in Moline, Illinois.
For Bell minorities at least, it looks as though the deal is most likely to fall over. The Bell share price may well have run away from the family in the past year.
The restaurant game has changed
Famous Brands has operated in one of the toughest industries imaginable over the past 18 months. When your headwinds include lockdown closures, curfews, alcohol bans, looting and load shedding, you deserve a medal just for staying in business.
South Africans are nothing if not resilient. By reacting to changes in consumer preferences and focusing on breakfast and lunch promotions, Famous Brands managed to achieve headline earnings per share of 97 cents for the six months to August 2021.
That’s up 140% on the comparable period last year but is 31% down on the comparable period in 2019. There’s a long way to go before things return to normal.
The bigger consideration is what that “normal” will be. Digital adoption has been the name of the game over the pandemic, with strong growth in takeaways and delivery sales. The Signature Brands portfolio (the burgers that are a lot fancier than your local Wimpy) saw 14% growth in home delivery sales.
Look out for your burgers to get more expensive in coming months. Food inflation peaked at 6.7% in the past six months for Famous Brands and the group is expecting higher inflation in the second half of the year.