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SA Inc: Triumph, blame, hope

A look at Shoprite’s turnaround, the ‘conspiracy’ against Ayo Technology, and an almost promise from ARC Investments.
Shoprite has emerged from ‘the war’ years in robust condition. Image: Moneyweb

What an impressive turnaround Shoprite CEO Pieter Engelbrecht has pulled off and, what’s more, in the middle of a pandemic.

Read: Shoprite says it has created over 4 300 new jobs

Three years ago it looked as though Africa’s largest grocery retailer would not easily survive the departure of founding CEO Whitey Basson. It certainly didn’t help market sentiment when many of his long-serving board colleagues also drifted away.

During the past three years Engelbrecht’s team was faced with distribution problems, IT problems, labour problems and ‘Rest of Africa’ problems. Not to mention surprising levels of dollar-denominated debt, armed robberies, record fuel prices and the first hike in value-added tax in 25 years.

In August 2018 Engelbrecht said, in relation to financial 2018, when the group reported its first drop in earnings since 1998: “We’ve been to war.”

Things were set to get worse. With the group’s chair and single largest shareholder caught in the eye of the Steinhoff implosion, it was almost inevitable there would be some repercussions for Christo Wiese’s most valuable investment.

And indeed for a while it looked as though Wiese-centred board-level machinations would distract the directors from focusing on dealing with the group’s toughest-ever trading environment.

Not only has Engelbrecht, who took over from Basson in early 2017, seemingly settled the ship – distribution and IT problems have been addressed, the debt significantly reduced and African investments pared back – but Wiese, who was crucial to the group’s phenomenal growth, is no longer chair.

While Engelbrecht and his team have certainly done a remarkable job, it’s only fair to point out that they were dealing with a fundamentally powerful organisation thanks to decades of work by Basson.

And now, having emerged from “the war” in robust condition it seems team Engelbrecht has an appetite for some local acquisitions.

Mind you, it seems investors are feeling a little more hesitant. Although the share price has gained 13% in recent trading, at R157 it is still far off the R267 it reached in early 2018 before news of the “war” had reached the market. It’s also considerably below the R211 Basson received when he sold his shares back to the company in a R1.8 billion deal struck in early 2017. But it’s certainly going in the right direction.

Shoprite share on the up

Ayo Technology

A share that’s almost certain to never reach its former high levels is Ayo Technology.

Last week its dominant investor Iqbal Survé seemed to blame most of the entire world for the share price’s weak performance since shortly after the day it was listed in December 2017.

That listing was made possible by a R4.3 billion investment from the Public Investment Corporation (PIC) when that powerful fund manager was under the control of CEO Dan Matjila.

Of course, Survé didn’t actually blame the entire world – just most of the SA regulators. Survé called on the parliamentary standing committee on finance to investigate the Companies and Intellectual Property Commission, the Financial Sector Conduct Authority, the JSE, the PIC and unnamed banking institutions seemingly to determine why they conspired to prevent him from realising his ‘African Unicorn’ ambitions.

Those ambitions initially centred on listing a technically insolvent company called Sagarmatha Technologies in April 2018, this time with an expected R3 billion kicker from the PIC.

Read:

The JSE pulled its approval just days before the scheduled listing, which happened to be just days after Sagarmatha had made its rushed application.

So the PIC’s investors were spared the R3 billion loss – but what of the R4.3 billion poured into Ayo?

Well, despite launching a number of court actions it seems the PIC mightn’t have a clue about how to get that back. Meanwhile Ayo is busy spending as much of the dosh as it can.

Last week it confirmed that it had acquired 100% of little-known Kathea Communications and 60% of Kathea Energy in deals valued at R125.8million. Ayo explained it was part of its planned expansion “and will see the group take a position in the rapidly evolving unified communication sector, and its first foray into the alternative energy space”.

ARC Investments

Another company that’s been a disappointment since listing, although not quite as controversial, is African Rainbow Capital (ARC) Investments.

The share price has drifted down from the high of almost R8 at the time of listing in late 2017 to a current level of R4, which is less than half its net asset value. This hefty discount is a little more severe than most investment trusts – think PSG, Remgro and even Prosus.

Investor sentiment towards ARC Investments certainly wasn’t helped by last year’s reminder of just how much these ‘minders’ are being paid.

Read: ARC Investments to spend R205m from rights offer on management fees

Joint CEO Johan van der Merwe told Moneyweb last week that it was aware of the unhappiness in the market and that it has “encouraged us to consider [the management fee structure] earlier” than the originally planned five years.

That hardly sounds like a firm commitment not to pay generous fees to management before they’ve actually created any value.

But presumably management thinks it’s enough to encourage some hope.

Read: ARC Investments caves, will revisit management fee structure

The ARC Investments share price did bounce 5.5% on last week’s news of talks about yet another tie-up with Sanlam; this time the plan is to create an Africa-wide private equity fund manager. Whatever. Until ARC Investments is able to demonstrate an ability to create value, its high-profile announcements will do little to close the yawning discount.

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What a contrast. Mr Engelbrecht worked hard and efficiently to fix Shoprite. Well done!

Our Sticky Icky-the less said the better but the PIC would be billions better off if he never existed.

As for the two oily Johan’s-clearly the market regards them as a burden rather than a benefit

That the PIC is unable to reclaim the R4.3 billion from AYO shows how abysmally these state entities are run. What repayments, if any, has AYO made on this “loan” which Survé seems to treat as a gift?

If the hawks were any good, and the NPA any good Surve and Matjila would both be in jail. Alas, since the ANC disbanded the scorpions not going to happen.

There is good interest from buyers for the ARCinvest share (AIL).

I wonder when it will move to R5.00 a share.

All I can say is “ when will the PIC stop being used as the getaway vehicle for grand scale theft?” smile technologies, Ayo and more have “stolen” billions from this fund it seems…and all get away with it. The next thing we will hear is that the PIC is the savior of SAExpress…..won’t be a surprise! Until the board and management of the PIC are held accountable for dodgy investments,this fund will be looted to its last cent!

End of comments.

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