Financial Mail Page 44-45 -11/08/20 07:37:06 PM

financialmail.co.za . August 13 - August 19, 2020

money&investing

44 August 13 - August 19, 2020 . financialmail.co.za 45

“The reality of these markets is that the com-bination of macroeconomic factors and the cur-rency depreciation has meant that despite ourprogress in the markets, they are translatingback as a very small contributor to the group.”

Wh at ’s more, “the operating environmentsare very complex, with a lot of challengesaround sanctions and regulatory matters”, saysShuter, who steps down as CEO next March.

Finance chief Ralph Mupita says one of thebiggest pushes for the exit is a mismatchbetween the effort of running those operationsand MTN’s returns, which have been erodedover time largely due to currency devaluations.

Consider that in 2012, the Middle East busi-nesses contributed up to a fifth of profits.

Th at ’s been winnowed down to less than 5%of the R41.8bn in earnings MTN made for thehalf-year to end-June.

Shuter — who joins BT as CEO of its Enter-prise business next year — says “we felt wewere best served ... to rather focus our energieson our core African markets that are closer toho me”.

Roy Mutooni, equityanalyst at AbsaAsset Management,says it’s a goodstep in acknowl-edging “t heunwieldy struc-ture of [MTN’s]current footprint”.

The potential forfurther US sanctions

is also a worry.“Focusing on the African operations narrows

its focus, and presents a clearer investment casefor investors,” he says.

Who will run this slimmed-down MTN isalso going to be key for investors. Mupita enjoysthe support of many in the analyst community,but is cagey about taking on the role. MTN has,however, promised to announce Shuter’s suc-cessor in the next six weeks.

MTN’s plan is to exit its operations in twophases: by selling its subsidiaries in Syria,Afghanistan and Yemen, and then by offloadingits 49% stake in MTN Irancell.

Shuter dismissed speculation that the MiddleEast exit has been forced in some way by theongoing US court case against MTN Afghanistan.

“This is not some kind of fire sale. This willbe done in a very orderly and responsible wayover the next few years.”

The company hasn’t said how much itexpects to make from selling these businesses,but Sanlam Private Wealth senior investment

a n a ly s t David Lerche estimates it could be asmuch as R25bn.

MTN Syria, MTN Yemen and MTNAfghanistan “would likely fetch some-where around R5bn combined”, hesays. But Iran is a different story as that“operation is much larger and MTN’sstake should be worth R10bn-R 20bn,depending on how many buyers arebidding ”.

For now, MTN is already inadvanced talks to sell its 75% stakein its Syrian business. The busi-ness is worth R1.4bn on its books.

As MTN divorces itself fromthe Middle East, profits are tickingback up.Headline earnings per share

jumped 120.5% to 430c, thanks in partto positive foreign exchange gains, while

subscriber numbers grew 4% to 261.5-million.Data sales were a third higher as data traffic

surged 91.5%, boosted by work-from-homec u s t o me r s .

The improvement in its results has been

mirrored by MTN’s steadily climbing shareprice over the past two months.

Year to date, MTN’s stock is about 31%weaker, but at about R62 the stock has morethan doubled since crashing to a low of R29 inMa r c h .

The recovery is also partly due to a higher oilprice, which helps its largest market, Nigeria.

The company has been on a drive to upgradeits network across its territories with the aim ofincreasing its 4G service. MTN launched its firstcommercial 5G services in SA at the end ofJune, using recently allocated spectrum.

The fifth generation of mobile data technolo-gies, 5G is said to be about 10 times faster than4G and 100 times faster than 3G. In a livedemonstration, MTN showed off speeds ofabout 600Mbps.

Peter Takaendesa, a portfolio manager atMergence Investment Managers, says higherrates of data usage due to Covid-19 h av e“clearly accelerated the achievement of thedata customers milestone, but the significantinvestments the group has made into its datanetworks and data-enabled devices have beenthe real enablers”.

He says MTN is likely to leverage thoseinvestments as well as proceeds from its assetsales over the next 12-18 months to selectivelylaunch 5G services in countries where it makeseconomic sense, while maintaining reasonablelevels of debt.

As it stands, MTN has borrowings of a not-inconsiderable R70.9bn, R3bn more than at theend of last year. Selling its Middle East assetswill go a long way to easing its debt burden.

And it will help the operator as it gears upspending on its network.Mupita says it is look-ing to spend about R2bn more than it had ini-tially planned, with capital expenditure nowpegged at R24bn by the end of the year. x

Vodacom

HOLD

Target price: R134.55

Potential upside: 3.9%* Based on analysts’ consensus forecast

Telkom

BUY

Target price: R42.88

Potential upside: 52.2%* Based on analysts’ consensus forecast

Vodacom

Telkom SA

MTN

2020 AprAprAug Jul Oct

2019

MTN vs Telkom vs Vodacom – weekly Based to 100

Source: Infront

COMING RIGHT

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METALS & MINING

J u b i l e e’s ship comes in

Lisa Steyn s tey n l @ b u s i n e ss l i ve .co. z a

ý The r e’s a sudden buzz over Jubilee Metals,and it’s not hard to see why.

Not one of the JSE’s better-known miningstocks, Jubilee’s shares have surged 72% year todate — and 67% in the past month alone.

Contrast that to the platinum index’s 24% ral-ly over one month, and its far more mutedyear-to-date gain of 15%.

After years of losses, the small metals recov-ery and processing company turned profitablelast year, and clocked up a 146% gain inattributable earnings for the six months endedDecember, to £9.85m.

But it’s been a hard slog, Jubilee founder andchair Colin Bird tells the FM.

“We worked extremely hard with very littleprogress, the CEO [Leon Coetzer] and myself,and spent many years tramping the country andthe world trying to find opportunities.”

Bird says the payoff now comes from s ev e nyears of work.

“Essentially the trains all came to the stationat the same time — projects, all of which werestarted at the same time, beginning to mature,and some others spewing out earnings,” he says.

Jubilee is the exclusive partner to HernicFe r r o c h r o me , the world’s fourth-largest ferro-chrome miner. Essentially, it recovers p l at i nu mgroup metals (PGMs) from chrome waste.

Its projects are the Inyoni, Windsor andDilokong PGM and chrome operations in SA, aswell as copper produced from a new Zambianventure. “It looks impressive and, boasting a lit-tle, it is impressive,” says Bird.

Jubilee Metals — listed on the AltX in SA andthe AIM in Lo ndo n — is by no means the firstrodeo for the 76-year-old veteran miningentrepreneur, who started out as a mining engi-neer just as the UK coal industry was dying.

He went on to work in copper in Zambiabefore walking into the SA coal boom, and laterbecame the mine manager of the BCL nickelcopper mine in Botswana. He’s perhaps betterknown for his role in the founding of PanAfrican Resources in SA and the copper-nickelgroup Kiwara in Zambia.

While analyst Keith McLachlan suggestsJubilee, founded in 2004, has “reinvented itselfmore times than Madonna”, Bird prefers to callit progress.

Jubilee Metals was born as Jubilee Platinum,a junior miner at a time when, “quite frankly,junior mining companies were not welcome inSA in the platinum space — a very well-con-trolled, tight space”, Bird says.

But opportunities were opening up becauseof the mining charter and Bird secured groundon the south of the bushveld complex for explo-ration. The metal was there, but it didn’t meanmuch to the market in the wake of the platinumprice crash of 2008.

“The day I announced our maiden resourcethe share price went up about 2p and quicklywent back down the next day. It was just aboutthe worst timing ever,” Bird says.

Unsure of what to do next, Jubilee went onto buy an Australian company in the samespace called Braemore Platinum, whose biggestclaim to fame was the ConRoast smelting pro-cess which it developed alongside Mintek.

This allows for the smelting ofchrome-bearing platinum ore,known as UG2, which had untilthen proved problematic and wasthe cause of a number of smelterf a i lu r e s .

The ConRoast process success-fully melts ore at the right temper-ature to create a molten bath of hotmetal and then, critically, to separate thePGMs out of it.

With Braemore in the fold, Jubilee decidedto move into a combined chrome and platinumspace. “We started working old dumps on avery small scale, old chrome dumps whereplatinum co-existed,” says Bird.

“We were able to beneficiate both the plat-inum and the chrome and give the chrome backto the owner of the dump and create quite auseful business model.”

So useful, in fact, that today Jubilee produces85,000t of PGMs and 400,000t of chrome con-centrate a year, making it one of the biggest

chrome concentrate producers in the world.“If you’re a mining company where [dumps]

sit on your balance sheet at no value, probably aliability, and somebody like Jubilee walks inyour office and offers to treat it for you, turn itinto metal and make it safe — it ’s a fairly com-pelling investment decision.”

Especially, he says, “when Jubilee turnsaround and says: ‘You don’t have to find apenny, we’ll do it for you.’ Th at ’s our businessmo de l .”

Jubilee decided to take the model toZambia and venture into zinc, copper, leadand vanadium.

In buying a significant stake in the BMRGr o u p , Jubilee has also acquired the dumpsfrom the Kabwe operations, once the world’slargest zinc and lead mine, which closed downin 1994, leaving behind the legacy waste.

Last year Jubilee also bought a Glencorerefinery known as Sable Zinc; it also had a cop-per circuit which Jubilee has resurrected and isnow up and running.

The zinc plant will soon follow, prob-ably early next year, as the pandemic is

preventing the delivery of some crit-ical equipment required for itsr e f u r bi s h me nt .

Globally, Jubilee has little to nocompetition and in SA it competesagainst Sylvania Platinum — also

listed on the AIM — while DRDGoldoperates in, well, gold.Many others have tried, but, as it turns

out, you can’t just process any old thing.“Every dump is unique. It’s got its own sig-

nature, it’s got its own DNA, and most of themyou are better off walking away than working,”says Bird.

Jubilee is now purposely going for biggerprojects with longer lives that can deliver qual-ity earnings.

Jubilee isn’t self-funding, and won’t be for awhile, “but we don’t want to visit the market toooften for equity”, says Bird.

The Jubilee stock is slowly becoming lessdriven by retail investors and now has an insti-tutional shareholding of 40%.

A long-ignored

stock, Jubilee

Metals has blazed

higher in recent

weeks as a clutch

of projects begin

to pay off

Rob Shuter: Steps down

as CEO next March

Freddy Mavunda

Chrome tailings: Jubilee’s

Inyoni operations

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46 August 13 - August 19, 2020 . financialmail.co.za 47

Petri Redelinghuys, a trader and the founderof Herenya Capital Advisors, likes Jubilee formultiple reasons.

Among them is that Jubilee’s assets are foundin good mining jurisdictions and in workingmostly surface tailings, and it is considered alow-risk miner with no large infrastructureinvestments that are at risk of confiscation.

Also, “t hey ’re not as labour intensive asdeep-level mines so they’re not at the forefrontof complicated industrial action”.

He views the move into copper, vanadium,cobalt and zinc as favourable, as all are metals

tied to electric vehiclem a nu f a c t u r i ng .

“There are a lot of sur-face dumps worldwide, sothe growth to this compa-ny is unlimited,” Redel -inghuys says.

Peter Major, director ofmining at Mergence Cor-porate Solutions, saysJu bi le e’s strategy isfocused and proven.

“They know what they can do and they geton with it. Jubilee is rock-solid, no funnies,probably undervalued and underrated — espe -cially for a growth stock, in the right sector,with great management.”

Until now, there has been a notable discon-nect between the Jubilee share price and itsearnings growth.

The Jubilee share has outperformed the JSEall share index over the past five years, but ithasn’t kept up with the mining index — and indollar terms it has in fact been flat.

“We have a market cap of £100m. We tippedover there last week. It’s two times our annualearnings … it should be a lot higher,” says Bird,though he does acknowledge that “the world’snot short of chairmen and CEOs saying that”. x

Every dump is

unique. It’s got its

own signature, it’s

got its own DNA,

and most of them

you are better off

walking away

than working

Colin Bird

Jubilee Metals vs JSE platinum & precious metals index – weekly – based to 100

Source: Infront

PLAYING CATCH-UP

Jubilee Metals

JSE platinum & precious metals

2020 Apr JulAug Oct

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HEALTH-CARE REITS

Health bet

about to

pay off

The Covid-19 pandemic has placed

a long-overlooked asset class

back in the spotlight worldwide

Joan Muller m u l l e r j @ f m .co. z a

ý Growthpoint Properties’ quest to build aR10bn real estate fund that invests exclusively inhospitals, medical facilities and research labo-ratories is poised for a big shot in the arm. SA’sfirst such fund is in talks to secure R 1.4bn fromthe International Finance Corp (I FC ) .

Growthpoint, which is also the JSE’s largestSA-based property play, launched its health-care real estate investment trust (Reit) just overtwo years ago with assets of close to R2.2bn.

The unlisted Reit, known as GrowthpointHealthcare Property Holdings, owns four hos-pitals and one set of medical chambers.

But its pipeline includes the R470m Cinto-care Hospital, a state-of-the-art facility underconstruction in Pretoria that will specialise inhead, neck, spinal, neuro and vascular surgery.The fund is also in the process of buyingPaardevlei Hospital in Somerset West in a dealworth R250m.

The problem is that until now, finding moneyto grow the fund hasn’t been easy.

Besides Growthpoint, shareholders in thefund include the Kagiso Trust and a few pen-sion funds and family wealth offices.

George Muchanya, Growthpoint’shead of corporate finance, whohas been responsible for gettingthe fund off the ground, says it’sdifficult for unlisted Reits to com-pete for capital with their listedco u nt e r p a r t s .

Wh at ’s more, not everyone isprepared to take a bet on an alter-native asset class they have hadlittle exposure to.

Muchanya says that given thatSA Reits invest primarily in shoppingcentres, offices and industrial build-ings, the market is fairly unfamiliar

with health care as a real estate sector. So a lotof education needs to happen.

He believes securing the backing of a globalinvestor such as the IFC will be a game-chang-er: “It will bring more credibility to the Reit andallow us to further grow our asset base.”

The advent of Covid-19 has raised awarenessof the potential returns that can be generated byhealth-care facilities. Muchanya is confident that

given increased interest in health care as anasset class, coupled with Growthpoint’s early-mover advantage, the Reit could grow its assetsto R10bn within the next five years.

That, he says, “will be an optimal size for aJSE listing”.

But who should invest in health-care prop-erty funds and why?

Muchanya says health-care Reits are aimedat investors looking for more stable, long-termcertainty of income and capital growththan that typically offered by traditionalreal estate sectors. “Health-care fundswon’t shoot the lights out, but you aregetting a more predictable return thanmost office-, retail- or industrial-focused funds,” he says.

Th at ’s because the risk profile ofhealth-care funds tends to be lowerthan that of other property sectors,mainly thanks to their longer leaseperiods. “The tenant profile is sticky and leaseexpiries are very low,” Muchanya adds.

For instance, tenants at the new CintocareHospital — doctors and other specialist medicalpractitioners — have signed 15-year leases withbuilt-in rental escalations averaging 7%-8% ayear. Tenants have the option to renew foranother 15 years once the initial lease lapses.

Th at ’s in stark contrast to the average two-to three-year leases that most retail and officelandlords have to be satisfied with these days.Muchanya says medical professionals, as wellas health-care operators such as Mediclinic,Netcare and Busamed, want the security of longleases so they don’t have to worry about re-establishing a practice or renewing tradinglicences every time they move to a newpremises.

Gr o w t hp o i nt ’s health-carefund is targeting an annual totalreturn of 13%-16% of which thedividend yield portion comprises7 % -8 % .

The rest is capital growth.That seems attractive in the

current depressed environment,where most listed Reits arestruggling to achieve any growthat all.

Though the pandemic hasbrought attention to the shortageof hospital and intensive-carebeds, Muchanya says opportuni-ties for greenfield developmentsin SA will be location specific andsector driven.

“Sandton, for instance, is prob-ably oversupplied, while mosttownships have a shortage of

good-quality private hospitals.”He sees plenty of opportunity to develop

more mental wellness, daycare and senior caref a c i l it ie s .

Health-care Reits may be unfamiliar territoryfor SA investors, but it’s an asset class that isfast gaining popularity globally.

In a report released last week on the impactof Covid-19 on real estate investment trends,international advisory firm JLL singles out

health-care assets, alongsidelogistics, as alternative sectors towatch, given investors’ r e new e dsearch for stable returns amidongoing economic uncertainty.

Sandeep Sinha, head of healthcare at JLL in the Middle East andNorth Africa, says the pandemichas boosted investor interest intraditional hospitals and clinicsand “in long-term medical and

senior care residences, laboratories, rehab cen-tres as well as pharmaceutical and medicaldevice manufacturing facilities”.

Sinha predicts that the health-care Reit sec-tor will see strong growth over the next fewyears, especially in Europe and Asia as moremoney flows to the development of new assets.

Health-care companies and operators mayincreasingly look to list their existing buildingsor offload properties from balance sheetsthrough sale and lease-back options, he says.

Meanwhile, property investors who want toshare in the health-care boom have about 33health-care Reits to choose from worldwide,with a combined market cap of close to $130bn.

Most of these are listed on US stock markets.They include National Health Investors, MedicalProperties Trust, Welltower, Ventas and Com-munity Healthcare Trust. x

LIFE INSURANCE

L i b e r t y:

worth a

punt?

T h e re’s big upside to Liberty’s share

price if the group can grow profit and

sales — but that’s no small ask

Stephen Cranston c ra n s to n s @ f m .co. z a

ý Liberty has made by far the largest loss in itshistory — R2.2bn in the six months to June.

Yet analysts are willing to back the life insur-ance company as a bu y .

These results were dominated by a R3bnreserve for the Covid-19 pandemic, whichshould cover additional claims and policy lapsesover the next two years at least.

But normal operationalearnings were also quite dis-mal, dropping 42% to R633m.

Yet Liberty CEO DavidMunro says the company isstill well capitalised and, unlikemany industrial companies,will not need to go to the mar-ket for equity capital.

In fact, it still has R12.8bn ofsurplus capital, equivalent to1.8 times regulatory capital ath a nd .

And the ravages of Covid aren’t exactlyapparent in its death and disability payouts,which rose 5% to R5.3bn, while annuity pay-ments were 6% higher at R4.9bn.

Munro says Liberty continued paying claimswithout fuss, and says 100,000 policyholdershave been given financial relief such as pre-mium holidays.

With poorer market conditions and somewrite-downs in the property portfolio, Libertytook a R631m loss in its shareholder p o r t fo l io

Liberty Holdings

BUY

Target price: R103.50

Potential upside: 62.6%* Based on analysts’ consensus forecast

Liberty should

have gone into

s h o r t- te r m

insurance, but

Standard Bank

took the

business for

itself

Nic Stein

Cintocare Hospital: Under construction in Pretoria

George Muchanya:

Lease expiries are

very low

The unlisted

Reit, Growth -

point Healthcare

Pro p e r t y

Holdings, owns

four hospitals

and one set of

m e d i ca l

c h a m b e rs