Craig Gradidge reviews the current BEE share offerings for black investors.

It has been another interesting year for investors in public BBBEE share schemes. As with previous years there were clear winners, non-performers, and a number of losers. This reiterates the point that we have made over the years: diversify, diversify and diversify some more when it comes to investing. It is a pointless exercise to try and guess future winners. Last year’s winner can easily become this year’s loser, as we have seen with MTN Zakhele this year.

The main feature of 2015 was the increasing impact of the changing regulatory landscape. The Financial Services Board has given the various schemes deadlines in which their trading platforms must become compliant with new regulations. We saw trading in Ukhamba suspended for a few weeks while they awaited the required permission to extend trading on the existing platform. We have also seen MTN Zakhele and Sasol Inzalo moving their listing from the over-the-counter (OTC) space to the JSE BEE board.

Phuthuma Nathi (MultiChoice)

Once again Phuthuma Nathi (PN) had a great year, particularly in terms of the dividend. PN settled debt in 2014 which resulted in more of the dividends from MultiChoice going to PN shareholders. The share is expected to be an attractive option for yield-seeking investors going forward. A key reason for this is that parent company, Naspers, has been taking dividends from the highly profitable and cash generative MultiChoice business and using that cash to fund expansion in other parts of the business. This results in high dividend flows to PN shareholders. The share continues to trade at a discount to net asset value, but given that there is no maturity date at this stage, that situation is likely to persist for a while longer. A key risk to the underlying MultiChoice business is the currency weakness as they purchase content from around the world in hard currency.

Sasol Inzalo

Sasol Inzalo (SI) had another volatile year with the share starting out at around R88, and ending the year close to the R50 mark. Continuous pressure on the underlying asset, Sasol, has seen its share price fall some 38% this year due to lower oil prices. The fall in the SI share price is justified though, as the value of the underlying asset is lower than the debt on the balance sheet. This means that investors are relying heavily on future dividend income and a share price recovery to create some value. The question is whether or not they are overpaying for this in the interim.

Sasol BEE Ordinary Shares

Sasol BEE (SOLBE1) shareholders saw the value of their shares fall in line with the drop in the Sasol (SOL) share price. SOLBE1 however trades on an attractive historical dividend yield of over 5% as a result of the fact that it trades at a discount to SOL but earns the same dividend. There is no funding structure associated with this scheme, and investors can expect the SOLBE1 share to closely track the SOL share price as we get closer to the end of the empowerment period which is September 2018.

YeboYethu (Vodacom)

YeboYethu (YY) continues to deliver fairly little excitement for shareholders. It has gone from around R61 a share to the current price of R64.10. Investors received a dividend of 96c per share during the year which included a special dividend of 22c. Prospects for Vodacom South Africa are not exciting with the company having gone ex-growth. However, it remains a solid dividend payer which is the main attraction for investing in YY going forward. Patient investors could be well rewarded post the empowerment period in 2018. Similarly to PN, whenever Vodacom SA pays a dividend to Vodacom Ltd, YY shareholders could benefit from a high yield. In the interim, expect returns and yields to remain unexciting.

MTN Zakhele

MTN Zakhele (MTNZ) had a fairly exciting year, but not from a performance perspective as the share fell dramatically in November. Underlying MTN was hit with an enormous fine in Nigeria which saw the company lose 22% of its value in one week. Trade in MTNZ was suspended at the time as it was changing trading platforms from the OTC platform to the JSE’s BEE Board. It opened for trade more than 35% lower than its closing price on the OTC platform. The share has recovered somewhat, but remains under pressure while the MTN fine issue remains unresolved at the time of writing this. A key concern for MTNZ is the impact of the fine on dividends from MTN going forward. If MTN were to cut its dividend, this could put more pressure on the MTNZ share price.

MTNZ management made a low-key announcement in October stating that there is now a possibility of a new scheme being introduced in November 2016 when the current scheme ends. This is certainly something for long-term investors to note in their planning.

Conclusion

It has been another interesting year for BBBEE share investors and the year ahead holds the promise of further excitement. What black investors need to remember, however, is that these schemes are not without risk, and that the general principles of sensible investing still hold. 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. As always, remember to diversify and not try to guess which one will be the winner.

Craig Gradidge is a financial adviser and director at Gradidge-Mahura Investments