Killer Trade Idea: Afro­cen­tric In­vest­ment Cor­po­ra­tion

Afro­cen­tric In­vest­ment Cor­po­ra­tion

Finweek English Edition - - INSIDE - MOXIMA GAMA

Afro­cen­tric In­vest­ment Cor­po­ra­tion Lim­ited (Afro­cen­tric), for­merly known as WB Hold­ings Lim­ited, is a diver­si­fied in­vest­ment hold­ing com­pany. Founded in 2006 and black owned, its ma­jor in­vest­ments are in pri­vate health­care, elec­tron­ics, power and the com­mu­ni­ca­tions in­dus­tries. In a bid to com­pete with Pow­ertech and Reunert in the elec­tri­cal and telecoms cable busi­ness, Afro­cen­tric made a deal with Tai­han Elec­tric − a leader in Korean cable man­u­fac­ture and sales – and M-Tec was then formed. The Kore­ans mod­ernised the old Usco cable fac­tory and also in­stalled a state-of-the-art fi­bre op­tic cable plant.

M-Tec turned over more than R1bn and made a net profit of R71m in 2008. It had net as­sets of R238.5m and a f ive-year R2.5bn con­tract to sup­ply Eskom with cable.

Be­ing a grow­ing in­vest­ment com­pany, Afro­cen­tric then ac­quired a con­trol­ling i nter­est i n Lethimvula In­vest­ments Lim­ited in Fe­bru­ary 2009, whose whol­ly­owned sub­sidiary, Med­scheme, is the largest black-owned, in­de­pen­dent med­i­cal aid ad­min­is­tra­tor and health risk so­lu­tions provider in South Africa. Med­scheme has over 3.2m lives un­der man­age­ment and boasts 41 years of health­care ex­per­tise, in­clud­ing ex­pe­ri­ence with the Gov­ern­ment Em­ploy­ees Med­i­cal Scheme (GEMS). Al­though Med­scheme is essen­tially a South African en­ter­prise, it has a mean­ing­ful pres­ence in Botswana, Namibia, Mau­ri­tius, Swazi­land and Zim­babwe.

It has also pur­chased a 26% stake in Alexan­der Forbes Health­care Lim­ited in Kenya. Med­scheme’s op­er­a­tions in Mau­ri­tius have proved to be an ex­cel­lent plat­form for fur­ther in­ter­na­tional ex­pan­sion, and Lethimvula In­vest­ments con­tin­ues to f ind op­por­tu­ni­ties in the rest of Africa. Lethimvula proved to be one of Afro- cen­tric’s star in­vest­ments when it in­creased op­er­at­ing prof­its from R57.4m to R126.4m in 2009.

In June 2010, Afro­cen­tric held a 34.9% in­ter­est in Jasco Elec­tron­ics Hold­ings Lim­ited, which lagged slightly in earn­ings, but man­aged to keep its head above wa­ter dur­ing the eco­nomic down­turn through its diver­si­fied busi­ness unit. Afro­cen­tric also has an agree­ment of co­op­er­a­tion with Rio Tinto PLC min­eral prospect­ing and ex­plo­ration projects, and with Hanwa Cor­po­ra­tion of Korea for the sup­ply and dis­tri­bu­tion of cer­tain cap­i­tal equip­ment.

For the year ended 30 June 2013, Afro­cen­tric re­leased au­dited re­sults cit­ing a 22% in­crease in rev­enue, a 28.7% in­crease in op­er­at­ing profit while nor­malised earn­ings per share were up by 31.3%, with a 42.9% rise in div­i­dends per share.

Who would have imag­ined that the small run-down elec­tri­cal cable plant of Usco in Vereeniging, bought by Joe Madun­gad­aba with his part­ners, Male­sela Hold­ings, would soar to such heights in such a short space of time?

Pos­si­ble out­come: Afro­cen­tric has pulled back through the sup­port trend­line of its bull trend af­ter peak­ing at 525c/share − thus form­ing a fall­ing wedge. It then breached the up­per slope of this bullish con­tin­u­a­tion pat­tern in Oc­to­ber 2013, even con­firm­ing a pos­i­tive break­out above 450c/share. Af­ter a mar­ginal pull­back, Afro­cen­tric held above the up­per slope of its pat­tern − known as a re­turn move or throw­back. This com­monly oc­curs af­ter a break­out. Afro­cen­tric has now re­sumed its bull trend, but its over­bought weekly RSI (rel­a­tive strength in­dex) warns of a pend­ing pull-back, which should present another buy­ing op­por­tu­nity above 450c/ share. The tar­get of this pat­tern sit­u­ated at 800c/share could be ful­filled in the medium term (six months to one year).

Al­ter­na­tive sce­nario: The falling­wedge ob­jec­tive would fail be­low 360c/ share. Down­side through 320c/share could steepen the bear trend back to the 200c/ share sup­port level.

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