Many of our readers are shareholders in BEE share schemes such as MTN and Sasol, but are these good deals, should you hold onto them and should you invest now if you missed the opportunity? Maya Fisher-French speaks to Craig Graddige of Gradidge-Mahura Investments who takes a temperature reading on what is a hot-stock and what is not.

Sasol BEE shares:

LUKEWARM – still some upside and no debt

Sasol’s deal comprised two different deals; the cash option and the funded option (Inzalo). The cash option was simply discounted Sasol ordinary shares. These trade on the JSE’s BEE Board under the code SOLBE1. These shares rank pari passu (on an equal footing) with Sasol ordinary shares in that they have the same voting rights and entitled to the same dividend. They are tradable only among qualifying black South Africans for the duration of the empowerment period.  In September 2018 the SOLBE1 shares convert to SOL shares and are then tradable among all investors.

Sasol Inzalo:

COLD – outstanding debt on shares means the value is negative

The funded option (Sasol Inzalo) have recently become available for secondary trading. The shares trade on an over-the-counter (OTC) platform and is a combination of web and telephone system. The relevant website is: www.sasolinzalotrading.com  and contains details on the process to buy and sell Sasol Inzalo shares.

This option included funding which is paid by the dividends received from Sasol so it has debt. Currently the NAV is negative (-R18.65) and price is hovering between R30 and R50. So it looks relatively expensive.

African Bank (ABIL): Eyomhlaba

MEDIUM/HOT –discount to actual value

ABIL undertook a public offer in 2005 with the launch of Eyomhlaba. The company offered Eyomhlaba shares at different prices with staff paying the least, and the general public paying the most at R4 per share. Eyomhlaba currently trades at around R15 per share on the OTC platform which can be found at www.eyomhlabatrading.co.za .

Eyomhlaba has quite a strong balance sheet with over R1.3bn assets (ABIL shares) and R300m debt which puts it at a net asset value (NAV) of close on R30 a share. So it is trading at a very deep discount to its NAV despite having such a strong balance sheet. Eyomhlaba uses the proceeds of the dividends it receives from its ABIL shares to service this debt and to buy additional ABIL shares in the market.

ABIL bought out Ellerines Holdings in 2008 and issued shares to raise funds for the transaction. This resulted in its black shareholding being diluted, and led to the company undertaking another deal. The second deal – Hlumisa – was done in 2008 is similar to Eyomhlaba in most aspects. It too has a strong balance sheet and trades at a deep discount to NAV.

Thembeka Capital

HOT – well diversified and strong discount to actual value

Thembeka Capital is an investment holding company so it has investments in various other companies. It invited the public to buy shares in 2007 and only managed to attract 500 investors. It is a relatively small company with close on R2bn in assets. However, the size issue should not be a deterrent as the company has well diversified asset base of high quality.

It owns about 3.7% of Capitec and 6% of the PSG Group (which itself owns a chunk of Capitec). It was recently included in the Pioneer Foods BBBEE deal and now owns about 4% of that business. It also has exposure to the agriculture sector and a host of unlisted companies operating in various industries. It too trades over the counter (www.thembekacapital.com) and also trades at a discount to NAV. The last trade shows at R40 a share, compared to a NAV of R80.

 MultiChoice: Phuthuma Nathi (PN)

LUKEWARM – hard to understand the real value

PN was MultiChoice South Africa’s (MCSA) BBBEE deal and was undertaken late 2006. MCSA owns the popular DSTV and Supersport brands among others, and itself is owned by media giant Naspers.

These shares have been available for trading since 08 December 2011 through and OTC market (www.phuthumanathi.co.za) and has traded relatively well since then. The biggest challenge with MultiChoice is the fact that it is not listed which makes valuation a tricky, more subjective exercise. It also makes it more difficult for investors to see what the exit strategy could be once the empowerment period is over as normally the share would convert to shares in the listed company.

The shares trade at about R37 a share despite numerous valuation reports on the website valuing the shares at between R112 and R176 a share. The balance sheet of PN is reasonably strong with assets of R6.7bn and liabilities of R2bn. Dividends are used to service debt and to pay investors a dividend rather than used to purchase additional shares as is the case with Eyomhlaba and Hlumisa.

Graddige owns shares in SOLBE1, Sasol Inzalo, Eyomhlaba, Hlumisa, and Phuthuma Nathi. Maya Fisher-French wishes she could!

 5 questions to ask before investing

• ·         What is the funding structure of the deal? How much debt is there relative to the value of the equity?
• ·         What happens at the end of the empowerment period? (Do the shares convert to listed shares or remain unlisted?)
• ·         How has the share been trading since becoming available for trade? (i.e. it may be wise to stay away from less liquid shares)
• ·         How long is the empowerment period?
• ·         What is the dividend paying track record of the empowering company? Is there a record of sustainability and growth in the dividend?

BEE on a monthly basis

If you do not have a lump sum to invest and would like to invest on a monthly basis the Sanlam Empowerment fund is a good option. As an investor you can contribute monthly to this endowment based product, and get exposure to a host of different BBBEE deals, as well as other asset classes.

Sanlam Empowerment fund is a range of risk profiled funds that are only open to black qualifying investors. These funds invest in a range of asset classes such as bonds, equities and private equity to varying degrees. There is a conservative, moderate and aggressive fund. These funds differ from the traditional BEE share schemes in that they accept monthly investments, and that they invest in a range of asset classes. The funds are only accessible via a Sanlam endowment wrapper (Stratus) in a 5 year or 10 year investment term. Investors are able to get exposure to a host of investment opportunities from as little as R250 per month.

This article by Maya Fisher-French first appeared in City Press