REITs under pressure

Good Morning Voornaam,

If you want to learn about capital structure concepts and you have 20 minutes to spare today, the latest episode of Magic Markets is for you. We've gone "back to basics" in the podcast, with a punchy show dealing with how companies think about debt vs. equity, the different funding costs and how this can impact dividend policy and share buybacks. Listen to the show and get ready to learn.

For a short-form podcast that delivers you several company updates in around 8 minutes, Ghost Wrap is the perfect choice. Brought to you by Mazars, the latest episode features my views on PPC, Sephaku Holdings, Naspers, Prosus, Spar, Alexander Forbes, Glencore, MultiChoice and Telkom.

And for something different, there's a podcast for company owners who want to understand more about the process (and risks) of selling their businesses, particularly to corporate acquirers. I spoke with UK-based professional Mark Davidson on the bizval podcast. There's much to learn in this show.

Rates are really biting

The impact of interest rates on a company's earnings can be substantial. Not only is there the direct impact of a higher cost of debt (which means the lenders get a bigger slice of the economic pie than before), but revenue can also take a knock if customers are facing similar pressures on their income from higher costs of debt.

Growthpoint gave the market a proper scare with an update that can best be described as honest. Although distributable income per share is set to grow in 2023, it is likely to drop in 2024 as the full impact of higher rates comes through the system. This is because Growthpoint has relatively short-dated debt, which means the interest rate cycle is going to be felt sooner than at some other funds in the market. Don't make the mistake of thinking that many other funds aren't facing this issue. The difference is that Growthpoint has been brave enough to warn investors of what is coming.

At the other end of the corporate PR spectrum, with find Mr Price and a frankly embarrassing comment that the reason for the lack of preparation for load shedding in December was that the company is a "value retailer" - so does this mean that it's alright to sell cheap clothes in the dark? Rather than owning the mistake, management is still trying hard to justify a truly poor performance that saw Mr Price deservedly lose ground to competitors. My theory is that the group has been too focused on acquisitions rather than the core business.

Other updates in Ghost Bites today include Brimstone, Harmony, Labat (a must-read for its weirdness) and Stadio. Find all of them here>>>

DealMakers to end off your week

The Friday summaries from the team at DealMakers are incredibly useful. You can see what you missed in local M&A, local corporate finance and deals in the rest of Africa.

For those interested in competition law, there's an update from the team at Bowmans South Africa on important trends in this area of law and how it gets enforced.

Talking Turkey

To make you feel better about our interest rates, the team at TreasuryONE highlights the hike by the Turkish Central Bank of a spectacular 700 basis points. This is the first hike since March 2021 and it reflects a significant change in central policy, taking the interest rate from 8% to 15%.

The Bank of England surprised the market with a 50 basis points increase rather than 25 basis points, driven by heightened inflation projections. The pound weakened in response, part of a recent trend in several currencies where a rate hike hurts rather than helps the currency, as the market prices in weaker growth. The Swiss Central Bank also hiked by 25 basis points.

All of this means that fears of a recessionary environment are heating up, with Jerome Powell's testimony adding fuel to the fire. This has impacted emerging markets, with the rand depreciating above R18.50.

With that, I wish you a restful and fun weekend! I've got some padel and golf lined up. Hopefully the weather plays ball so that I can also play ball!

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