The whispers are becoming more audible: will Sekunjalo Investments — a vehicle aligned to media magnate Iqbal Survé — find the current malaise that has afflicted African Empowerment Equity Investments (AEEI) the perfect opportunity buy out minority shareholders at a sizeable discount to official NAV, and then delist the company from the JSE?
Something surely has to give at AEEI, the parent of controversial technology listing Ayo.
It has been listed since the late 1990s and survived the implosion of fitness group LeisureNet, but has endured dismal sentiment of late. Its share is down almost 70% over a year.
Trade in AEEI is scant as the market battles to figure out a realistic valuation for the investment group, which might make frustrated minority shareholders amenable to a buy-out offer.
Survé, speaking to the FM this week, says he’s "not ruthless enough" to pitch an offer to minorities.
"I’d be hesitant to put in an offer to buy out minorities and delist the company. Some shareholders have been with the company for over two decades … it’s not fair to pitch an offer at these levels."
Still, Survé must be acutely aware of the contrasting set of investment realities at play at AEEI. The (cynical) market places a value of less than R500m on AEEI, but a directors’ view — as articulated in the just-released annual report — gives it an astounding R6.4bn in NAV.
Some shareholders have been with the company for over two decades … it’s not fair to pitch an offer at these levels
— Iqbal Survé
Put another way, the market applies a share price of 101c to AEEI, while the company’s directors pencil in an NAV of R13 a share and a tangible NAV of R12 a share.
Investment holding companies have, of late, traded at wider discounts than traditionally applicable. But AEEI’s discount of over 90% on stated tangible NAV sets a new parameter.
Still, Survé’s firm will find it difficult to justify the claimed NAV in the annual report. What can be easily quantified is the value of AEEI’s majority stakes in its two listed investments, Ayo and Premier Fishing & Brands.
Based on share prices at the time of going to press, these stakes would collectively be worth R420m-R430m – or equivalent to about 87c a share. A small stake in financial services group Sygnia would add another R35m.
The value of AEEI’s unlisted investment portfolio is more difficult to quantify, since there is a paucity of financial information on the two most significant holdings — the 30% stake in technology group BT Communications and the 25.1% stake in Saab Grintek Defence.
AEEI has always stressed that confidentiality agreements have precluded releasing too much financial or performance detail on BT, but the FM understands the investment is a source of regular dividends. When AEEI initially proposed injecting the BT stake into Ayo, a value of close to R1bn was placed on the transaction (which was subsequently stalled).
But even with the "old" BT price pencilled in, it is difficult to rationalise the official NAV numbers. One presumes the NAV is calculated based on a valuation of Ayo — where the more than R3bn cash pile is under threat from Public Investment Corp (PIC) court action to have funds raised at listing repaid — and Premier, rather than the respective market prices.
A buyout tilt from Sekunjalo, which already speaks for almost 62% of AEEI, at a pitch well above the market price would give some credibility to the claimed NAV numbers. An offer to minorities at 200c — almost double the ruling share price — would cost Sekunjalo less than R400m.
But Survé can also afford to bide his time, which might be prudent, considering that the findings of the recently concluded PIC inquiry, in which the Ayo IPO featured strongly, have not yet been released.
In the meantime, Survé did — through 3 Laws Capital — snap up an additional 9% stake in Premier.
"To tell you the truth, I have not looked at the [recently released] financials for AEEI as I have been overseas. But I take a long-term view of AEEI’s portfolio. I’ve never sold a share in the company in my life as I believe in the underlying value. These days there is a good dividend yield, and there is little risk as there is very little debt."
With AEEI’s share price at depressed levels, what could conceivably transpire is a proposal for the group to unbundle the listed stakes to shareholders. That would leave AEEI holding mainly its unlisted investments like BT and Saab, along with greenfield interests like Genius Biotherapeutics and other tech-aligned ventures.
Market interest would probably be scant in what would be an AEEI-lite, which might make it far easier for Sekunjalo to buy out and delist than the current configuration.
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