TFG’s disappointing 1H26 results suggest its BOLTS strategy may need to be tweaked, with less emphasis on “build-out”, in our view. Rising debt is a concern, and while management contends the debt partly funds the debtor book, we believe it relates mainly to acquisitions made as part of its build-out strategy. TFG has invested R9.6bn in acquisitions since FY15, of which R3bn was subsequently impaired.
We argue that TFG should pause the “build-out” part of its BOLTS strategy and focus on delivering value from its existing portfolio. This would reduce the risk of poor capital allocation. The R1bn share buybacks are also confounding, given its two capital raisings over the past ten years and its elevated debt levels.
We present a potential way to unlock value by drawing on the example of Woolworths’ partial sale of its financial services business to Absa in 2008. We estimate that TFG could release cash of around R10.9bn in this way (R1.7bn from a 50% disposal, with the balance from gearing up the book), which could be used to reduce its debt and fund distributions to shareholders.
We find it surprising that the TFG Group’s inventory provision dropped to 7.8%, given the spike in aged stock in both TFG Africa and TFG Australia. We calculate that the current stock provision covers around 43.2% of the aged stock, compared to 56.6% in 1H25. We believe a higher level of provisioning may be warranted, and think there could be more markdowns in 2H26.