Solving the ‘NAV’ enigma
COMMENTS in Sekunjalo Investment Group’s annual report show that finding the proper value for this empowerment counter is rather important. Chairman and CEO Iqbal Surve notes in his annual review: “Our vision of being a conglomerate involves building strong divisions that can be listed. This will enable us to unlock value and to provide shareholders with an opportunity to invest in focused divisions or the conglomerate’s top structure.”
It’s quite clear that Sekunjalo’s technology interests and its biotech subsidiary, Bioclones, will be partially spun off and listed in the short to medium term. Presumably healthcare, financial services and other focus areas will follow later once critical mass and sustainable profitability are secured.
With those value-unlocking exercises afoot, the importance of Sekunjalo’s net asset value (NAV) becomes all the more important. The annual report again shows two figures: R365m (or 101c/share) for the group NAV and R903m (or 250c/share) for the company NAV.
The argument is really that group NAV shows assets at a more conservative value, while the company NAV reflects the directors’ valuation of investments and assets. In other words, the group balance sheet shows investments in property, plant, equipment, biological assets, goodwill, trademarks and pharmaceutical dossiers as well as other investments – collectively valued at around R470m. The company balance sheet shows none of those but claims that investments in subsidiaries hold more than R800m in value.
The market will only prove the value of the investments once the first few divisions are partially spun off and separately listed.
Meanwhile, investors have to decide whether Sekunjalo is reasonably priced at current market values against the group NAV or priced at bargain basement levels against the more “liberal” company NAV.
It’s a tough one. But investors determined to solve the “NAV” enigma have a 172-page annual report to plough through.