Killer Trade Idea: Afrocentric Investment Corporation
Afrocentric Investment Corporation
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.