Patience is likely to continue to be rewarded, and volatility could open opportunities for those who missed the bus the first time to get onboard, writes Craig Gradidge.
2014 was another interesting year for BBBEE share investors and the year ahead holds the promise of further excitement. What is clear now is that these schemes are not without risk, and that black investors need to adopt a mindset similar to that of investors around the world
In order to assess the performance of these shares in 2014, it is important to note that the JSE delivered a return of around 11% for the year, including dividends.
The Good
Phuthuma Nathi (I and II) (MulitChoice)
Last year investors saw a capital return of over 40% and a dividend return of almost 8% for the year. Thanks to solid dividend flow from underlying MultiChoice (DsTV), the company was able to settle debt a full two years ahead of schedule and pay a special dividend which combined with the ordinary dividend was at least 70% of what investors initially paid for their shares in 2006. Investors can expect solid dividend returns from the company while they wait for value to unlock. Risks to PN include the currency and regulation.
Sasol Inzalo (SI) had a volatile year in 2014 with the share moving from a low of R60 to a high of R160 and ending the year at around R88. Investors were rewarded with a surprise maiden dividend of R2 a share which brought returns to around 50% for the year. The value of the asset (Sasol shares) is down almost 40% from its peak, and is worth less than the value of the debt on the balance sheet. However, it is the value of Sasol shares at the end of the empowerment period that matters most, and SI can expect to receive another R1.4bn in dividends between now and the end of the empowerment period. However, the current price seems a bit rich given the fundamentals of SI and the risks inherent in Sasol at the moment.
YeboYethu (Vodacom)
Volatility was also the name of the game at YeboYethu (YY) which began trading early in 2014 at R40, reached a high of R80, a low of R39 and ended the year at R61. Investors were rewarded with dividends of R1.11 after dividends tax. The majority of YY investors are in fact those that bought shares at R25 in 2008, and have experienced market beating returns over 2014 and the over the full term of the deal. The outlook for Vodacom SA is not good with the company struggling to grow revenues and profits as a result of increased competition, and lower mobile termination rates. While 2014 was a good year for YY investors risk levels have certainly increased and the underlying asset (VOD SA) is facing significant challenges in the short to medium term.
2014 proved to be an important year for MTN Zakhele (MTNZ) in that it was able to offer a stable trading platform to existing and prospective shareholders. The share was up around 20% for the year, and paid no dividend. MTNZ will mature late 2016 and therefore is attractive to investors with a more short term investment objective. The share trades close to its NAV which is to be expected as liquidity is good and maturity is less than 2 years away. This means that MTNZ investors are relying on the performance of MTN and the gearing effect from the debt structure to get a good return going forward.
Thembeka Capital (TBK) became the first of the BBBEE shares to respond to the changing regulatory environment. Management used the opportunity of increased regulatory uncertainty to unwind the scheme by offering investors 1.7 PSG shares for every 1 TBK share resulting in strong share price growth. While it has been an awesome year for TBK shareholders these investors will have to rely on future performance in the listed space from PSG. TBK had long been a personal favourite as it offered shareholders a diversified exposure. Investors will now have to diversify their own portfolios.
The Bad
Since opening for secondary trading in December 2013, Welkom Yizani (WY) has hardly moved from its initial public offer price of R10 a share. Investors in the main made no capital returns from WY and a miserly 25c dividend (after DT), meaning a return of 2.5% for the year. Prospects for the Underlying Media24 business do not look great with lower advertising revenues and falling circulation numbers. A number of the internet businesses seem to be doing well, and ecommerce type businesses seem to offer some hope for future growth. There seems to be a permanent buyer of stock at R10 a share, so either someone knows something or the share is being propped up to prevent initial investors from losing money. Either way, there remain better prospects in other deals.
Sasol BEE Ordinary Shares
Despite a strong performance early in the year Sasol BEE Ordinary Shares (SOLBE1) ended the year marginally lower with capital losses of almost 3% for the year. However, investors made about 6% in dividends, resulting in a small positive total return for investors. As this is essentially a discounted scheme with no funding structure in place, it is really the 11% discount between Sasol ordinary shares (SOL) and SOLBE1 that matters for prospective investors and this is not a sufficient discount to compensate investors for the lack of liquidity in the stock, despite the relatively short maturity period of 3.5 years. It remains to be seen whether or not SOL will maintain dividend levels which would see investors making some sort of return while waiting for the recovery to take place.
Ukhamba Holdings (UKH) is Imperial’s staff scheme that opened to the general public via a listing on an OTC platform in November 2013. The scheme still has a long maturity, 2025, and therefore trades at a deep discount to its NAV. The share was volatile over 2014 and ended the year flat at around R20 a share, and a dividend return of just under 2% (39c a share). The underlying investment in this scheme is Imperial Holdings, which could stand to benefit from the falling oil price which is a major cost input in its logistics business. This makes it a good investment to include in a portfolio with Sasol Inzalo or SOLBE1. However, it does remain an investment for the patient, long term investor with longer than a 10 year investment horizon.
The Ugly
Hlumisa (HLU) and Eyomhlaba (EYO) are African Bank’s two BBBEE schemes. Both shares lost in excess of 90% of their value over the year as underlying African Bank (ABIL) collapsed. Both EYO and HLU are now worthless as the value of the debt on the balance sheet far exceeds the value of the only asset – ABIL. These shares were meant to mature at the end of 2015, but this is unlikely and investors may find themselves having to wait a while longer.
Craig Gradidge is director at Gradidge-Mahura Investments
0 Comments