Johannesburg Stock Exchange in Sandton, Johannesburg. Picture: Itumeleng English/ Independent Newspaper.
By Athenkosi Mjebeza
Equity markets can be complex to navigate, influenced by macroeconomic factors, regulatory changes, corporate actions, and earnings releases. While earnings remain the key driver of sustainable share price growth, market overreactions or underreactions to these developments often lead to price fluctuations, which present opportunities to investors.
Barloworld’s takeover offer
On December 11 , Barloworld received a firm offer from Newco. The offer was to acquire its issued shares entirely. The offered price of R120.00 per share represented a significant premium over the previous day's close. The announcement was met with optimism, driving Barloworld’s share price up by 15.5%. However, the proposed deal has encountered resistance from a Barloworld shareholder (with an ownership of 17.8%) who has expressed their unwillingness to tender its Barloworld shares unless the consortium offers at least R130 per share. The transaction remains subject to shareholder and regulatory approval.
Tencent added to US military sanctions list
On January 7 the share price of Tencent, a key holding for Naspers and Prosus, fell by 10.1%, resulting in the holding companies’ share price falling by 8.4% and 7.3%, respectively. The trigger was the decision by the US Department of Defence (DoD) to add Tencent to the Section 1260H list. This list includes entities allegedly supporting China’s military modernization. Tencent has denied being a military company and has stated that it will work with the DoD to address any misunderstandings. The inclusion is expected to have minimal impact on the companies' fundamentals as it does not restrict their operations or sourcing from the US unlike the CCMC/CMIC lists, allowing US investors to continue trading in Tencent shares. Revenue exposure from the US is minimal majority of which is gaming at roughly 4-5% of group revenue. While the market reaction may be an overreaction, it reflects escalating trade tensions. There remains a high probability of a removal from the list, as seen in previous cases.
MTN benefits from tariff hike approval
On January 20, the Nigerian Communications Commission approved a 50% tariff increase on calls, SMS, and internet data for telecoms. This is the first regulated tariff increase since 2013, leading to a 10.6% rise in MTN's share price. Despite strong underlying operational performance, MTN faces significant financial challenges due to the sharp devaluation of the naira, which has depreciated by more than 70% against the US dollar since June 2023. Inflation has surged to over 30%, prompting the Central Bank to raise its benchmark interest rate to 27.5%. A significant portion of costs are denominated in dollars, leading to higher expenses, finance costs, and forex losses. While the long-overdue tariff increase may dampen usage due to high inflation and interest rates, it is a positive development for telecom operators. It will help restore profitability and support the long-term viability of Nigeria’s telecom sector, justifying recent share price increase.
BHP cooling on Anglo takeover
On January 27, Anglo American’s share price declined by roughly 6% following a Financial Times (FT) article citing sources familiar with the situation that “BHP has cooled on returning with another bid for Anglo American” since last year’s offer. However, the FT article does not indicate any definitive statement of intent and BHP retains the flexibility to make another offer. The weakening share price may reflect a lower Mergers & Acquisitions (M&A) premium.
Anglo American has initiated a major corporate restructuring, which includes the sale of its coal assets, a planned demerger of Anglo American Platinum, as well as divestment of its diamonds and nickel divisions. Yet in a bid to unlock value, a smaller Anglo could be strategically vulnerable to inbound M&A activity. As a result, Anglo share price may continue to have upside potential in the short to medium term, driven by media speculation on peer-company M&A activity and investor expectations of a new deal.
Athenkosi Mjebeza is an equity analyst at Terebinth Capital, part of the PPS Defensive Fund investment team.
BUSINESS REPORT