Another tricky week, with British American Tobacco (BAT) shares smouldering enticingly under R650 as I write.
The group’s core cigarette business still shows remarkable life in a market that is slowly being stubbed out. But there is so much written about the new “healthier” product ranges in the latest financial report that the old smoke market feels almost secondary.
BAT’s encouraging progress in the new category noncombustible brands — vapes, heated tobacco products and modern oral — is always tempered somewhat by my mother’s out-of-hand dismissal of a vape. For those readers who need reminding, my constant cajoling of “try it, you might like it” eventually backfired spectacularly, with Mom hurling the offensive device clear across her cottage.
Still, BAT’s numbers are blazing, with vapour (vapes) revenue up 55%. That’s a big number, but more heartening — for BAT shareholders — is that this was achieved on volume growth of 18.6%. The group reported increased pricing in all key markets and, in the same markets, maintained volume share leadership in these devices. This is reckoned to be “an important indicator of sustainable future growth”. It’s early days for noncombustible products, which — despite their rapid growth — are still generating huge losses for BAT. Cigarettes, of course, are famous for their pricing power, and remain one of the key attributes in assessing an investment in BAT.
Yet the revenue/volume statistics suggest vapes also have a degree of pricing power. This is encouraging because at this stage there is presumably still a fair battle for market share in this emerging area. So, on Monday morning — fuelled by my sixth cup of coffee — I was debating yields: whether to jettison my favourite (and only) property stock and bulk up on BAT. Portfolio diversity would normally nag away at me. But I went ahead and charged up. Let’s see how it pans out.
One of the biggest challenges is sorting out the share liquidity that has hobbled Rex Trueform for so long
Picking up speed
Meanwhile, another little hot spot has popped up on the Karooooo landscape. While Karooooo is best known for its Cartrack vehicle tracking and fleet management operations, its online vehicle retailing platform, Carzuka, is now picking up speed. In the first quarter of the 2023 financial year Carzuka generated revenue of R50m, up markedly from the last quarter of 2022, when revenue was R32m. It made an operating loss of R4m, but if growth continues at this pace profitability won’t be too far off. Keep an eye on this venture.
With Cartrack’s many data streams Carzuka stands to build a reputation as a dealership selling vehicles with accurate “running histories”, something that will provide assurance to prospective buyers in these tough times.
I wrote last week on investment company Astoria’s decision to saddle up a position in extreme sport protective gear specialist Leatt Corp and to sell out its position in diversified mining group Afrimat. I wondered if it was the right decision to sell out of Afrimat, which has been a stout performer over the long term. In the just-released financial report, Astoria stresses that it has the utmost respect for Afrimat management as well as its ability to create value for shareholders. But it adds: “The 1% shareholding we held did not fit with Astoria’s approach of being partners to the management teams of the various businesses we invest in.”
By deduction, I would assume Astoria intends playing a greater role at Leatt, which is quite an exciting prospect. High-revving Leatt increased revenues by 88% to $24m in the quarter ended March, and more than doubled net profit to $4.2m. It seems confident of protecting (and winning) market share in its various protective wear niches.
Speaking of transforming investment companies, I see empowerment pioneer Marcel Golding, one of the prime movers at Hosken Consolidated Investments (HCI), is now CEO at Rex Trueform. After being unexpectedly ushered out of HCI, Golding built a commanding stake in RexTru but has, until now, seemingly preferred staying in the background. RexTru is well on its way to diversifying away from its fashion retailing core with new investments in property, specialist media and water infrastructure.
I’d like to hope that Golding’s new executive role brings some much-needed dynamism to RexTru. Of course, one of the biggest challenges is sorting out the share liquidity that has hobbled RexTru for so long. Would Golding be so bold as to collapse the African & Overseas pyramid structure, or dismantle the N share structure — or do both?
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