Mind the Huge gap

Since peaking near R10 in 2017, Huge Group’s share price has collapsed by roughly 87% to about 130c today. Yet over the same period the company’s NAV per share — the key metric for any investment holding company — has more than doubled from 447c a share to 949c. The result is an eye-watering 86% discount to NAV.

Such a wide gap implies one of two things: either the market anticipates future value erosion, or it simply does not believe the valuations placed on Huge’s unlisted portfolio.

The group’s core focus remains ICT, even though it has recently begun pivoting into renewable energy. Four investments alone form the lion’s share of this NAV: Huge Connect at R701m, Huge TNS at R499m, Huge NXTGN at R196m and Huge Digital at R126m — together accounting for nearly 80% of the group’s portfolio, while loans receivable from group companies of R336m contribute a further 17%.

Huge Connect is the long-standing core of the group, offering secure wireless connectivity solutions across retail and banking infrastructure. It historically focused on the transmission of point-of-sale data and secure communications for financial institutions, and continues to play a dominant role in the payment switching backbone for local card machines.

Huge TNS, meanwhile, provides data and voice solutions to corporates and SMEs, working both directly and through resellers and system integrators. It is technology-agnostic — leveraging fibre, mobile wireless, fixed wireless and even satellite — and delivers the core connectivity and infrastructure services that underpin modern networked enterprises.

Huge NXTGN (pronounced “next gen”) has emerged as the group’s most compelling growth engine. As an independent mobile virtual network enabler, it provides the cloud-native digital virtual network enabler platform that lets retailers and brands launch their own mobile virtual network operator services, a segment poised for strong growth as companies such as Capitec, Mr Price and others increasingly use mobile offerings to strengthen customer loyalty. Its technology is underpinned by intellectual property that Huge Digital acquired from the liquidated Virgin Mobile South Africa, giving NXTGN a credible and scalable foundation. The business has landed major clients in Pick n Pay and Boxer, for which it operates the back-end systems behind their MTN-hosted mobile services.

Though Huge Distribution carries a modest valuation of about R39m, it represents another of the group’s more scalable growth opportunities. Management is repositioning the business beyond its traditional telecommunications hardware roots and into the fast-expanding renewable energy supply chain. Huge Distribution aims to become a leading importer and distributor of solar panels, inverters and lithium batteries.

As a thinly traded small-cap — with minimal activity on some days — it tends to deter larger funds

The group recently launched a portfolio-wide efficiency drive that includes job cuts, leadership changes and the consolidation of the Huge Connect, Huge Platforms and Huge TNS workforces. This rightsizing initiative is aimed at aligning operations with current economic conditions and removing duplicated roles across its major subsidiaries. The restructuring is expected to yield about R16m in cost savings over the current 12 months, after separation costs, and about R32m annually in each subsequent year — a meaningful permanent reduction in the cost base.

Now, on valuation. Of the R701m attributed to Huge Connect, R582m represents preference shares. The 11.5% required rate of return used in valuing these prefs is reasonable relative to government bond yields of about 8%, but there is a catch: only a small portion of the dividends is actually being paid, with the unpaid portion capitalised as a receivable within Huge’s investment. Meanwhile, the value of Huge Connect’s ordinary equity has dropped almost 40% over the past year to just R119m, while the risk premium in its valuation assumptions has jumped from 10.6% to 33.1%. That combination leaves a thin equity buffer — a critical factor when evaluating the credit risk tied to those preference shares.

On a rolling 12-month basis, the group’s portfolio companies generated ebitda of R159m after about R2m in holding-company costs. Once the R300m of central debt is factored in, this equates to an implied ebitda multiple of about 12. This appears to be the heart of investor scepticism: the market is effectively pricing Huge at just over three times ebitda. That may be overly punitive if these earnings prove sustainable (or grow), especially given that Huge is a relatively capital-light business.

Huge’s share price also reflects its limited liquidity. As a thinly traded small cap — with minimal activity on some days — it tends to deter larger funds, leaving retail investors to dominate the free float. Building a meaningful position requires patience, and if negative news breaks, exiting at scale can be slow and costly. Furthermore, the group gets very little cash income from its underlying investments, leaving the holding company itself chronically cash-poor.

A significant part of the undervaluation thesis hinges on Huge Connect remaining a durable, cash-generative asset, yet management’s own elevated risk-premium assumptions signal that investors should not ignore potential vulnerabilities. Still, if the recent workforce rationalisation stabilises performance and if the group’s growth engines — particularly NXTGN and Distribution — execute successfully, the current discount could represent a compelling opportunity for patient investors.