Small cap companies fly way below the radar of many investors. But Wilderness Holdings, the Botswana and JSE-listed luxury safari group, has recently caught the eye of The Rise Fund, a global impact fund led by private equity firm TPG and backed by big names like Richard Branson, Bono and Mo Ibrahim.
Between June and July, The Rise Fund bought 34% of Wilderness while African Wildlife Holdings, an affiliate of US private equity group FS Investors bought 24%. These are two separate deals, but there is some overlap between the investors.
Wilderness, founded in Botswana in 1983, has 50 camps in Botswana, Kenya, Namibia, Rwanda, South Africa, Zambia and Zimbabwe, as well as related airline, touring and transfer services.
The company, which also has non-profit trusts, runs its business alongside its goal of protecting wildlife and wilderness areas, a strategy which no doubt piqued the interest of The Rise Fund.
Wilderness Holdings commercial director Derek De la Harpe told the Moneyweb Investor the group is very excited to have these new shareholders and new board members. “The Rise Fund has objectives aligned with ours in terms of using business to create sustainability and economic development goals,” he said. “The fact that an investment of that size was made by investors of that stature is a real validation of our business model but also for Botswana as a region and for us who believe in doing well by doing good.”
The Rise Fund investment also caught the eye of Vestact, whose portfolio manager Byron Lotter pointed out that: “The nice thing about having wealthy, influential people like that as shareholders is that they are patient and more interested in the long term sustainability of the business and its ethos.”
Lotter said Wilderness has never put profits at the forefront of its objectives, but has done “incredibly well” over the last few years, with the share price tripling in five years. Over the last year, however, the share price has lost 9% and at its current price of R6.50, it remains a penny stock, with severe liquidity constraints. Share price graph
In the year to February, Wilderness grew revenue by 9% to P1.2 billion (R1.5 billion) on the back of an 8% increase in bed-nights sold, offset to some extent by the pula gaining more than 5% against the dollar.
Earnings before interest, tax, depreciation and amortisation were down 1% – or up 11% excluding the effect of the acquisition of the Governors business in Kenya and foreign exchange losses due largely to pula gains. Headline earnings were up a record 82%, while cash generated by operations was up 40% to P219 million (R282.7 million).
Its occupancy rate increased one percentage point to 59% despite its prime Mombo camp in Botswana being under refurbishment.
De la Harpe said this is a good time to be in safari business, with the global economy in reasonable shape despite what is going on under Donald Trump’s rule in the US and issues around Brexit. Demand for the group’s products and services is strong.
Operations in Namibia, Rwanda and Zambezi recorded exceptional growth, contributing on a combined basis 33% (2016: 16%) of segmental profit.
Botswana’s performance was down 3%, which Wilderness considered a respectable result given the effect of the Mombo rebuild and the exchange rate. South Africa declined 13% due to the strength of the rand, while Kenya recorded a decline of 47%.
De la Harpe said that the flagship operation, Mombo, was operating well below capacity as guests have been staying at a smaller temporary facility, and the rand was strong, so all in all, these were good results.
He said revenue is mainly derived in dollars, which is “a comfortable hedge for us. If the rand strengthens, it drags the pula along and this has the effect of depressing results on conversion, and depressing demand for products that are rand priced (in South Africa and Namibia).
Lotter said the exchange rate has been a factor because it earns in dollars, but that is a good thing. “Most developing market businesses would love to earn in hard currency and pay costs in local currencies,” he said.
Considering the luxurious nature of its camps, Wilderness spends P100 million (R129 million) annually on maintenance capital, but other capex will decline now that the big rebuild of Mombo is complete.
The company does have a tax issue, with a subsidiary company being informed by tax authorities of a revised VAT assessment, of an unknown amount, which the company is likely to dispute.
De La Harpe said that since the year-end, and as the group is entering its busy season, demand has remained strong. The last six months has seen a number of positive political developments in Africa, specifically South Africa, Zimbabwe, Angola and Kenya.
Occupancies reflect these changes, although there are large variations. Occupancies in Namibia are in the early 90s, Botswana is consistently high, but Zimbabwe is quieter. “The changes in Zimbabwe are particularly exciting for us,” he said. “We weren’t expecting to see it become a real prospect of significant growth in the future – to see it happen when it did is very exciting.”
So too, is the prospect of working with its recent investors. Lotter said in a note to clients that: “a private business like Wilderness will be more effective than a non-for profit because they are driven to create shareholder value and to maintain their own survival. This [The Rise Fund] investment sounds like a good fit.”
Lotter said wild areas around the planet are depleting, while the demand for wealthy people to experience these places is increasing. “That puts Wilderness in a very good position as custodians of some of the last real wild places on the planet. I expect them to continue to grow nicely over many years.”
Whether this translates into a wider spread of investors and higher share price remains to be seen.
De la Harpe said Wilderness has been “a stable investment platform, with not a huge amount of fluctuation year to year, and we have produced a reasonable dividend in line with policy since listing, and we are here for the long haul – our business model is all about sustainability.”
He admitted that low liquidity is an issue, and that the new shareholders and new board would want to address that.