No brainer for income seekers
MAYBE THE prolonged bull market conditions have the market so preoccupied with growth that a great income play like empowerment mezzanine financier Makalani Holdings is almost completely overlooked.
Initially the market was critical of Makalani for its purported tardiness in committing its funds of more than R2bn to BEE lending opportunities. With a surfeit of BEE transactions over the past three years, punters felt Makalani should have no problem funding lucrative funding opportunities.
Today R1,7bn has been lent by Makalani in a variety of carefully selected empowerment transactions, meaning that three quarters of the available funds have been mobilised – including the latest deal with Daimler Benz’s Sandown Motors for R360m. Yet the share price still languishes at levels lower than 9500c on the JSE – 5% less than what the company listed at in 2005. Last stated net asset value for Makalani was 10005c/share, but we suspect that’s stretched a bit since that official valuation.
At a presentation at the Nedbank Mid-Cap conference, CEO Vusi Mahlangu stressed that the group would not chase deals. “It’s easy to spend money…but we want to spend it wisely.”
To Makalani’s credit, the group has carefully assembled a diverse lending book, not committing more than 15% of available funds to any specific economic sector.
The biggest exposure (14%) is in motor vehicle retailing with mining (7,8%), banks (6,7%), financial services (8,7%), household goods (8,9%), transport (6,2%), insurance (5,2%), healthcare (2,1%), gaming & leisure (3,8%), engineering (2,3%), services (1,1%) and paper/packaging (3,8%) making up the balance. Quality assets are represented in these lending sectors – most notably Metropolitan Life, Brait, Nampak, Mvelaphanda Group, FirstRand, Gold Fields, Kumba, Imperial, Unitrans, Peermont, Mondi and Life Healhcare.
The current pre-tax yield on invested assets is a useful 14,02% with Mahlangu reassuring that Makalani’s strategy is still to grow its portfolio with quality assets at attractive yields.
Interim results for Makalani (to end December) will be published in about three weeks’ time. We suggest those who need insulation against market volatility and need a compensatory income flow should take a glance at Makalani sooner rather than later.