Con­fi­dence in Abil

Finweek English Edition - - INVESTMENT -

Mo­men­tum As­set Man­age­ment has i ncreased its hold­ing in strug­gling un­se­cured lender African Bank In­vest­ments Limited (Abil) to 5.5% from 4.96% pre­vi­ously on be­half of its clients. In­ter­est­ingly, the as­set man­ager only started ac­cu­mu­lat­ing the ma­jor­ity of its stake in Abil in the lat­ter half of 2013 when the lender raised R5bn of new eq­uity.

Known in the mar­ket as an as­tute con­trar­ian in­vestor, Sam Houlie, head of un­con­strained in­vest­ments at Mo­men­tum As­set Man­agers and port­fo­lio man­ager of the Mo­men­tum Value Fund, says that now is not the time to be con­cerned about Abil. “The time to have wor­ried about Abil was in early 2012 [when the share price was at peak lev­els and the qual­ity of loans granted was weak]. In­ci­den­tally, very few wor­ries were ex­pressed by the mar­ket at that time,” he says.

These in­vestors would have seen their in­vest­ment de­crease by over 60% by the end of May last year af­ter Abil an­nounced it had recorded a head­line loss of R3.1bn for its in­terim pe­riod ended March 2013. The loss was un­der­pinned by credit im­pair­ments and the write-off of re­main­ing good­will, trade­marks and de­ferred as­sets.

Houlie says that the cur­rent sit­u­a­tion is very dif­fer­ent to 2012 for both Abil and the in­dus­try. “Man­age­ment have a clearer grasp of the cur­rent re­al­ity and while the op­er­a­tional en­vi­ron­ment re­mains chal­leng­ing, con­di­tions are sta­bil­is­ing and the qual­ity of loans granted is sig­nif­i­cantly bet­ter than in 2012.”

The mar­ket is now watch­ing Sens like a hawk for any cau­tion­ary trad­ing an­nounce­ment by a peer re­tailer, as Abil re­cently an­nounced it was in ne­go­ti­a­tions re­gard­ing the pos­si­ble dis­posal of El­ler­ine Hold­ings, its loss-mak­ing fur­ni­ture unit. Abil ac­quired El­ler­ines in 2007 for R10bn. Sadly, to­day that is the mar­ket cap­i­tal­i­sa­tion of the whole Abil busi­ness.

Spec­u­la­tion is rife in the mar­ket about the shape and form of the dis­posal. But com­men­ta­tors such as Ves­tact’s Sasha Naryshkine say what Abil is likely to re­alise from the sale would be very lit­tle.

The time pres­sure for Abil to sell El­ler­ines be­cause it is a drag on cap­i­tal could be a fac­tor against it dis­pos­ing the busi­ness on its own terms. Fin­week un­der­stands that there are sev­eral play­ers in the mar­ket who have been eye­ing the re­tailer but want it on their own terms, to the ex­tent of tak­ing ad­van­tage of the ur­gency for Abil to sell the busi­ness. One mar­ket com­men­ta­tor has said that the rea­son why Abil has not been able to sell El­ler­ines over the past 11 months was be­cause po­ten­tial buy­ers “have been too de­mand­ing”. Houlie says that while as share­hold­ers they can­not pre­scribe the terms of the dis­posal, ideally such

a deal would be able to ex­tract value from the tax losses, the dis­tri­bu­tion net­work as well as the per­form­ing cash businesses in El­ler­ines.

El­ler­ines has ac­crued tax losses of at least R2bn, mean­ing fu­ture prof­its of the busi­ness un­til a cer­tain point will not be taxed.

Clients of the Mo­men­tum Value Fund and the Mo­men­tum Small and Mid-cap Fund, which hold the Abil stock, will prob­a­bly breathe a sigh of re­lief if the sale ne­go­ti­a­tions do go the way of Abil be­cause then the busi­ness will have be­gun to suc­ceed with its turn­around plan.

Sell­ing El­ler­ines is part of the group’s five-point strat­egy, which also in­cludes strength­en­ing the core (un­se­cured bank­ing) busi­ness as well as de­vel­op­ing and build­ing new growth op­por­tu­ni­ties.

The next 18 months will be fairly cru­cial in sta­bil­is­ing the busi­ness. New busi­ness vol­umes are not ex­pected to grow sig­nif­i­cantly, but there­after Houlie ex­pects the var­i­ous growth ini­tia­tives to start gain­ing trac­tion. He says the earn­ings power of the busi­ness is cur­rently un­der-ap­pre­ci­ated and there is po­ten­tial for an ex­po­nen­tial im­prove­ment in earn­ings and re­turn on eq­uity.

Var­i­ous other as­set man­agers have also shown their con­fi­dence in the busi­ness by ac­cu­mu­lat­ing more or­di­nary shares. These in­clude the PIC, which now holds about 15% of Abil, Corona­tion at 10% and Old Mu­tual Plc at 6.33% while JP Mor­gan As­set Man­age­ment opted to re­duce its hold­ing from 5.04% to 3.75% in­stead.

Abil’s share is some 76% down from its 2012 highs.

Sam Houlie

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.