CAPE TOWN – Namibian financial services firm Trustco might operate from one of the most sparsely populated countries in the world, but this should not suggest that it is short of growth opportunities.
In recent weeks the company acquired Fides Bank, one of six licensed banks in Namibia and prior to that, in January, it acquired Elisenheim Property Development Company for N$300m.
The bank will allow Trustco to convert its current lending operations (student loans and mortgages) into a fully-fledged banking operation, which it expects will lead to the development of new lending opportunities.
The property company Elisenheim owns a 6000-erf residential development near Windhoek where there is an acute shortage of serviced land for development. This will complement Trustco’s existing industrial property portfolio, which will provide office, retail and industrial space as the Namibian economy grows.
Source: Trustco annual report 2014
To some it may seem that Trustco houses an odd combination of assets and businesses. In fact in its recently released annual report group MD Quinton van Rooyen muses: “Are we an insurer with investments in property, finance and education? Or are we financiers with investments in insurers, property and education?”
It doesn’t seem to matter; the company is unashamedly opportunistic and will seek opportunities in any sector where it sees scope for substantial and above average long-term growth. “We are entrepreneurs. If an opportunity presents itself and it enhances shareholder wealth and does not harm the environment or anything, we will take it,” Van Rooyen said from Windhoek.
While the company is tightly held – just 39% is available as a free float – investors seem to approve. The share has appreciated by 70% since April 1 to 200c currently.
Good results helped. In the year to March revenue increased by 41% to N$844 million (1N$ = R1) and the gross profit margin jumped from 60% in 2013 to 80% IN 2014. Net profit after tax rose to N$253 million from N$39 million. Headline earnings of N$142 million grew at the equivalent pace.
Source: Trustco annual report 2014
The roots of the company lie in property and its property assets are expected to underpin growth for years to come. It owns 1 547 hectares of sellable land which it terms its “land bank”. While the carrying value of the land is N$537 million, Trustco estimates that the realisable value is N$3 billion.
The property business has delivered returns on equity in the past three financial years of 21.67% (2012); 23.5% (2013) and 44.17% (2014).
The insurance business, which targets the lower income segment of the market, is particularly innovative. With an ROE of 138.3% (2012), 52% (2013), and 164% last year, it is worth watching. Products include legal cover, dread disease, hospital, funeral and income protection – most of which are sold over a mobile platform. “If you want to insure 500 000 people on a low cost model – the only way to do that is with mobile technology,” he says.
The company also offers free life cover in conjunction with a cellphone provider. If you spend a certain amount of airtime on your phone you are covered for 30 days of free life insurance as a multiple of your spend. The effect is increased loyalty to a network and higher average revenue per user, while the user is not out of pocket at all. This product has been available in Namibia for five years.
While a similar launch in Zimbabwe – with Econet – ended badly, Trustco has learned some lessons and launched the product in South Africa.
“There is a huge demand in emerging economies for insurance – according to the World Bank less than 5% of people are insured in these markets,” says Van Rooyen.
In SA its insurance business is being built from the ground up, using the 2012 acquisition of micro-finance business Real People as a base.
A similar pilot is underway in Brazil where two million customers have signed up.
For the time being the focus is on Namibia, South Africa and Brazil, though Van Rooyen says that a team is constantly evaluating other opportunities in other African countries.
In April this year Van Rooyen, who founded the company with a N$100 acquisition in 1992, stepped out of the day to day operations to head up the newly established Trustco Innovation Hub. The company’s CFO Ryan McDougal is acting CEO until a suitable appointment can be found.
In this regard he is similar to Naspers’ Koos Bekker. Both men believe strongly in allowing the younger generation the space to lead. And both believe in the importance of having time – unfettered by day-to-day operations – to explore for new ideas. In the year he took off (prior to his more recent departure) Bekker travelled widely, from Mongolia to the US.
Van Rooyen will surrounded by the bush outside Windhoek, in an Innovation Lab. He’ll be surrounded by about ten ‘incredibly bright people’ with no rules and no office hours.
The recent share price appreciation of the company, and the quiet ambition of its management has investors wondering if this is a wild swing or if it is the beginning of a long period of share growth.
Keith McLachlan, small caps writer and fund manager with AlphaWealth, likes the company, in particular the educational loans and micro-insurance businesses. However he thinks the share valuation is a little rich at current levels.
Another fund manager, who is invested in the business and chooses not to be named, believes Trustco has the legs to go far. “They have big plans for SA and other emerging markets, and have some amazing businesses in Namibia. Look at the net profit margin and return on equity of the Namibian finance, education and insurance businesses. It’s amazing.”
On Friday Global Credit Rating affirmed its investment grade ratings of BBB- (long term national scale) and A3 (short term national scale) respectively; with the outlook for both deemed stable.