Make or break for Kirkinis
There are investors who want African Bank CEO Leon Kirkinis’s head on a spike — metaphorically at least. You can hardly blame them. Had you bought and held the share over a decade, you’d be poorer than when you started.
Over 10 years, the value of your investment in African Bank Investments (Abil) is down 20%; the company has a market capitalisation of about R10-billion.
Rival Capitec over precisely the same period is up 3 847% and worth R25-billion.
Most investors, however, look at the performance over the past three years. They have seen a 75% decline in the value of their investment against a backdrop of bad decisions, beginning with the acquisition of furniture group Ellerines and a failed attempt to lower the cost of borrowing into what remains a high-risk segment.
Despite that dramatic underperformance, co-founder and CEO Leon Kirkinis is still in charge.
Traditionally, sports teams sack coaches after a season if they underperform.
Manchester United didn’t give David Moyes a full year before cutting its losses. It’s what companies do when things go wrong. And it works.
Super Group’s outperformance since investors recapitalised the business (twice) and replaced founder Larry Lipschitz has been spectacular.
Murray & Roberts replaced the legendary Brian Bruce and, at Anglo American which replaced Cynthia Carroll last year, it seems pretty clear that convincing turnarounds are under way at both companies.
More recently, Adcock Ingram replaced CEO Jonathan Louw, and the pharmaceutical giant is now chaired by Brian Joffe, veteran Bidvest CEO and significant shareholder who came out trumps in the messy battle for control with Chilean medicines maker CFR.
Back in 2004, Old Mutual appointed Tom Boardman to replace Richard Laubscher to run Nedbank, with no small success. The same rule applied to Old Mutual itself when the financial crisis hit and it was then Jim Sutcliff’s turn to go and be replaced by Julian Roberts.
Sure, it seems brutal, but the turnarounds in performance at both companies have been spectacular.
Kirkinis’s fate has been hotly debated in the boardrooms of institutional investors who know that few successful turnarounds are executed by a team that caused the problem.
Investec under the stewardship of Stephen Koseff may be the exception. Koseff has overseen a remarkable turnaround in performance over the past two years since some shareholders agitated for his removal.
True, Investec is nowhere near its R160-a-share peak, but it is clawing back lost ground.
The investors who are backing Kirkinis will be hoping he may be able to restore some of the value that has been lost.
The latest Morningstar research shows Abil is held by more than 100 unit trust funds.
Kirkinis’s supporters regard the core banking business as the most important cog in a potential turnaround.
But for those like Feroz Basa at the Old Mutual Investment Group Electus Boutique, which sold its shares in Abil at the elevated levels of about R36/share, the microlending environment is simply too overtraded and consumers too overstretched in a shrinking economy to see a decent return any time soon.
“There’s no doubt management has made significant mistakes,” says Karl Leinberger, chief investment officer at Coronation.
“Management and nonexecutive directors on the board need to be strengthened. But we believe right now that the company is best served by Leon at the helm.”
Coronation holds 22% of the company spread across various
No doubt management has made significant mistakes
portfolios. That view is shared by Stanlib, which owns 8% of the shares.
That probably gives Kirkinis about two years to restore his reputation as a manager.
He faces serious regulatory headwinds though. There is also the sale of Ellerines to worry about, a tough sell in an environment of rising interest rates. There is no small discomfort around its recent deal with Edcon, which could see it extend loans to that client base. The Edcon deal, after all, has uncomfortable echoes of the 2008 purchases of Ellerines for a mega R9-billion.
Kirkinis and finance director Nithia Nalliah are the only two executives left standing from an executive committee that has seen significant departures in recent years. It began when Dave Woollam quit as finance boss. Woollam, incidentally, has since become a strong critic of credit insurance. Abil has profited handsomely from it but is a target of regulatory reform.
Earlier this year, Toni Fourie, who ran the Ellerines business, and head of risk Thami Sokutu, joined the Abil exodus.
Institutions expect that new talent on the board in the next couple of months will revive Abil’s fortunes. Perhaps a successor to Kirkinis may be identified.
Bruce Whitfield is a writer and broadcaster. He presents The Money Show on Talk Radio 702 and 567 Cape Talk.