I have done the (very) early morning school run from Kommetjie to Rondebosch for nigh on 10 years. This year I got a reprieve … well, sort of. My daughter Sarah is now armed with a learner’s licence, and enthusiastically takes the wheel to and from school. I reluctantly ride shotgun.
In my wife’s words: “You can kick back and relax now”. Kick back, yes. Relax, not quite.
I most certainly kick for the entire hour’s drive, my foot constantly working the “invisible brake” on the passenger side, as — I think — Sarah applies the brakes belatedly. There’s been a fair bit of petrified squirming — so much so that I’ve twice set off the seat belt warning sensors.
On Wednesday we almost tore down the ramparts at AB InBev’s famous Newlands brewery. Sarah was focusing intensely on approaching the narrow and potholed bend, and momentarily drifted left. I was so close to the brewery wall that I could make out hops stains and even some small-print graffiti, which might have read “Bring back Ohlsson’s Lager”.
Wary of the unwanted attention that a discordant and damaging clunk of metal on mortar would bring, I deftly nudged the steering wheel to put the vehicle back on safer tack. Shareholders in the brewing giant can thank me later.
Speaking of helpful passengers, mercurial investor Sean Riskowitz seems determined to be close to the brains trust that is steering controversial Namibian investment company Trustco.
Sean Riskowitz seems determined to be close to the brains trust that is steering controversial Namibian investment company Trustco
One might have thought Riskowitz, who must still be smarting from the implosion at Conduit Capital, would be less enthusiastic about investing in illiquid and higher-risk small-cap stocks. Namibia, of course, might be a field of great opportunity in years to come, having enthusiastically embraced the opportunity to capitalise on rich oil and gas discoveries off its coast (unlike its illustrious neighbour to the south).
In any event, the Riskowitz Value Fund (RVF) and Trustco “will enter into an option to make a cash investment of up to R950m in Trustco”. According to a Trustco press release, this option (and we should probably reiterate “option”) would entrench RVF as an important anchor foreign investor. Last time I looked, RVF already held a stake of about 23.6% in Trustco. What size of additional stake the R950m will buy is not clear from either the Sens announcement or the lengthier press release, which also contains proposals for Trustco founder Quinton van Rooyen to convert R1.48bn of debt into equity.
Why the debt settlement plan was not detailed in the Sens release might raise a few eyebrows — especially after the JSE previously took issue with the accounting treatment of a sizeable loan that Van Rooyen offered to write off. A report by the Namibian Broadcasting Corp on Trustco’s website suggested the RVF option would boost the investment entity’s stake to about 28% — a calculation that I presume would factor in the debt-to-equity conversion plan.
Not exactly cash flush
The price for the share option and the debt conversion will be interesting to gauge, with Trustco’s share having most recently traded at 50c and the most recently stated NAV having been set at 117c a share. Arguably more intriguing is a transaction that proposes that Trustco buy an 11.35% stake held by the RVF in its own subsidiary, Legal Shield Holdings (LSH), which houses the group’s insurance and real estate portfolios. Just over six years ago RVF bought a 20% stake in LSH from Trustco for R1.2bn.
That transaction inferred a value of R6bn on LSH. Yet in its most recent annual report Trustco had a value of R953m on its insurance hub and R1.37bn on its property holdings — segments that generated revenue of R75m and R48m respectively in financial year 2023.
Trustco, even with Van Rooyen’s loans written off, is not exactly cash flush. At the end of August there was just R11m in the bank, plus R681m in “amounts due by investee entities”, vs borrowings of R889m. So how much will Trustco pay RVF for the 11.35% in LSH, and will this deal form part of the option given to RVF to invest up to R950m in Trustco?
I’m sure these important questions will be answered in the months ahead. For now, Trustco believes the proposed deal with the RVF “represents an opportunity to align our interests and [to] leverage Trustco’s expansion”.
More specifically, Trustco says the (proposed) capital injection fortifies Trustco’s balance sheet and enables expansion that will drive portfolio growth, share buybacks and dividends over time. Share buybacks? Hmmm … with 86% of the issued shares held by just five shareholders I think the scope for buybacks is somewhat limited.
And in terms of dividends, Trustco needs operational cash flow. That’s something that has been conspicuously absent for the past couple of years.
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