SIMON BROWN: I’m chatting now with Craig Gradidge. Gradidge Mahura Investments is where you’ll find him. Craig, I appreciate the time today. We are talking around the SAB BEE deal – [SAB] Zenzele Kabili, which is listed on the JSE. We chatted last June [when] it was trading around R200, R180. I asked you for a fair value. I suppose the first point is we can get a fair value on this because it’s directly allied to the underlying Anheuser-Busch [InBev] shares.
CRAIG GRADIDGE: Yes. Good morning, Simon. That’s right. We spoke last year when Zenzele Kabili listed and, yes, we saw the price go from the roughly R60 expected listing price all the way up to R180 within a week. So it was trading at a massive premium to its value and, as you correctly point out, you can calculate a net asset value which is I think different from what a fair value would be. So we tend to watch it trade relative to fair value rather than net asset value.
SIMON BROWN: That’s a good point. And of course a fair value is a point we can debate forever and a day. The point here, your take on it if you run the numbers, because I see that the share is now trading sort of back down almost R50?
CRAIG GRADIDGE: Just to give you a sense of our fair value [is] where we buy at a 30% discount to net asset value – and that discount is to cater for the lack of liquidity with these sort of shares and sort of the risk from any kind of funding structure that sits inside the shares. So that’s how we define fair value.
But I think you’re right, it it’s a fairly grey area. Currently Zenzele Kabili – just to run you through the calculation – owns five million Anheuser Busch (AB InBev) shares. Those shares are worth roughly R4.7 billion. There is debt on the balance sheet. So, as with all these structures, your BEE investments, there’s equity contribution from investors, some kind of discount and a certain amount of debt. With Zenzele Kabili at the end of December last year that debt was at about R2.6 billion. You don’t get a sort of a running update on that number; you have to wait for financials. Then you take those two values, subtract them, and you get a net asset value of about R2.1 billion for Zenzele Kabili.
There are 40 million Zenzele Kabili shares in issue, so you get a net asset value per share of roughly R52.60.
SIMON BROWN: Okay. It’s trading at that net asset value, but you always slice some off just for the structure and sort of the vehicle that it sits in.
CRAIG GRADIDGE: Yes. The lack of liquidity. So yes, you slice some off. Some people say 20% is a decent liquidity discount. Our sort of rule of thumb is 30%. At the moment it’s trading at a small discount to net asset value, but a fairly large premium to fair value.
SIMON BROWN: Okay. And when it gets to a perfect world – and I appreciate the markets seldom are – when it sort of gets to that fair value it should move with Anheuser Busch, broadly in sync with the company over which it is essentially written?
CRAIG GRADIDGE: Yes.
So over time it should track the underlying, provided there aren’t any scares on the debt side, on the funding side. But if there aren’t any, if you have interest rates skyrocketing, that could perhaps cause quite a bit of a disconnect because the cost of funding is going through the roof and that would eat into value.
So yes, I think once it’s closer to fair value or even net asset value if there’s sufficient trading of the share. Now this one doesn’t have a lot of debt: it’s kind of sitting at about 50:50 or even less than that net asset value to the amount of debt. So R2.6 billion debt, R2.1 billion net asset value.
SIMON BROWN: I take your point. And certainly I see that liquidity is low. There’s not a heck of a lot of shares trading.
A quick last question. We chatted a couple of months back around BEE shares more broadly, the dividend-paying ones. A couple of folks have asked [about] the JSE-traded one. Am I correct that there are only two? There’s this SAB Zenzele Kabili, and then there’s the Sasol one; the others trade on Equity Express [Securities Exchange].
And then on Equity Express you can get Phuthuma Nathi and Ukhamba.
Read: Investment opportunities in the public B-BBEE share space (May 2021)
SIMON BROWN: Ah, yes. That was the other one. Ukhamba was the one I was forgetting about.
We’ll leave that there. Craig Gradidge of Gradidge Mahura Investments, I appreciate your time.
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