Holding out for an empowerment hero

READERS MIGHT RECALL a cover story last year on the wide discounts placed on empowerment investment companies. After writing that story I watched as the discounts widened further with an increasingly audible argument that the listed BEE vehicles are locked into structures that are not conducive to capital raising (because of the share price discount) or unlocking value through asset sales (because of empowerment ownership restrictions).

I decided this year to take positions in all five empowerment investment counters: African Rainbow Capital (ARC) Investments, Brimstone, African Equity Empowerment Investments (AEEI), Grand Parade Investments (GPI) and Hosken Consolidated Investments (HCI).

Aside from recently listed ARC, I have followed all these since their listings. I have seen them all (again, with the exception of ARC) at their most vulnerable: HCI strug- gling to turn e.tv to profits; AEEI reeling from the LeisureNet collapse; GPI fending off the Cape Empowerment Trust and a bruised Brimstone resorting to returning its founding capital to shareholders).

These guys have endured … unlike some others that quickly cashed up and skittered off the JSE.

For the most part, the assets I acquired — at a substantial discount — are of solid quality with cash flows and distributions that underpin consistent dividends.

But I can’t say that, at this point, my BEE portfolio has performed well. GPI, thanks to some recent (and long overdue) nettle grasping around underperforming fast-food assets, has been positive.

ARC was by far the worst, with a share price that can’t seem to find any traction. The market clearly has other views around the stated NAV, so I was suitably spooked and sold out at about 445c.

I’ve held my nerve at AEEI in spite of some stinging conjecture in the media around the listing of technology subsidiary Ayo. The share is fairly illiquid, which is probably why (at the time of going to press) it was holding above 300c.

In the case of HCI and Brimstone, I increased my positions, with both share prices seriously disconnected from the value of the underlying portfolios as well as the respective deal-making possibilities.

The long-term view, for me, also factors in possible consolidation. I still think SA needs an empowerment champion, and a merger between any of the black-owned investment counters could make for a BEE behemoth that offers diversity, huge cash flows and a balance sheet to wrestle for big deals. I’m holding out …