PSG’s departure from the market means there’s one less investment holding company to choose from. As the universe of investment opportunities on the JSE continues to shrink, it’s never good to see another major group using the exit door.
Though the problem of a discount to NAV plagues many such companies, the likes of Sabvest Capital (up 33% in 2022) show that these can be solid investments. The key is to offer an appropriate cost base and a solid mix of investments that aren’t easy to access elsewhere. These are critical in narrowing the discount to NAV to an acceptable level.
Lest we forget, Berkshire Hathaway is an investment holding company. With the most famous investment management team in the world, it’s a perfect example of why these structures can be appealing. Investors can put their capital behind top business minds with a mandate to grow the NAV over time.
With news that Royal Bafokeng Holdings (RBH) now holds more than 5% of Transaction Capital (up from 3.38%), I couldn’t help wondering whether we will ever see this broad-based BEE (BBBEE) investment group come to market. It’s an intriguing thought, provided it doesn't fleece investors like the management team at African Rainbow Capital has done with its incentive structure.
RBH is one of SA’s most successful investment groups, having grown NAV to R46bn by the end of the 2021 financial year. Since inception in 2005, R14.6bn has been received in dividends from investments and R7bn has been paid in dividends to the sole shareholder, so over half of dividend income has been reinvested in growth.
That shareholder is the Royal Bafokeng Nation Development Trust, a professionally managed structure designed to improve the lives of the Royal Bafokeng Nation. These people have been in the Rustenburg Valley since 1450, and the community’s 29 villages are home to 128,000 people.
RBH is run to the same governance standards as a large listed group. Given the underlying purpose, one might argue that the standards are even higher. There’s a twice-yearly review of activities at the kgotha kgothe, a meeting of every married man in the tribe. That sounds more daunting to me than an AGM in Sandton.
Though the Royal Bafokeng Nation was successful at farming, it was the platinum under the farmland that created the opportunity for incredible wealth creation. Of course, life is about what you actually do with the opportunities you have. That’s what defines greatness.
It would be a special thing if it did, forcing some institutional investors to leave the comfort zone of Claremont and travel to North West for an AGM
Today, the mining portfolio is just 16.5% of total assets. This is a case study in how to diversify off the base of a core investment, creating a far more sustainable portfolio that can achieve great returns over time. The financial services portfolio is nearly 44% of assets, with RBH having enjoyed an incredibly fruitful relationship with the Rand Merchant Bank (RMB)/FirstRand group.
It’s perhaps ironic that the first investment by RBH — a 10.1% stake in Zurich Financial Services in 2005 — was in financial services rather than mining. A year later, Royal Bafokeng Resources and Royal Bafokeng Finance merged, creating the significant base in mining that became the core asset in RBH, the new holding company. Things have come full circle, with financial services the most important part of the portfolio.
There has been plenty of corporate finance along the way. As a BBBEE investor of choice, RBH was able to take significant minority stakes of over 20% in a variety of groups. There were smaller stakes as well, such as 1.97% in Vodacom SA. RBH made the most of the 2000s bull market in SA, securing many investments before the 2008 global financial crisis.
The RMB deals in 2011 gave RBH exposure to arguably the best banking and financial services group in SA. There are many other examples of deals, including activity outside the country.
Would the Royal Bafokeng Nation ever tap the market for capital and allow other investors to participate in this story? It would be a special thing if it did, forcing some institutional investors to leave the comfort zone of Claremont and travel to North West for an AGM.
The BBBEE investment holding companies on the JSE have been a disappointment. RBH could deliver some much-needed excitement and give investors a replacement for their PSG exposure. Now that would be a transformation story.
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