UPDATED: Sekunjalo to rejuvenate Independent? Not on this performance. Then again, maybe this isn’t yardstick

There was more interest than usual in yearend results from investment holding company Sekunjalo. Earlier this year the company’s principal shareholder Iqbal Surve led a consortium which paid R2bn for leading SA newspaper group Independent News & Media. I was looking forward to chatting to Surve’ about that deal to get an idea how the former medical doctor was getting his hands around that challenge. It is miles bigger than anything he has attempted thus far, and in a notoriously difficult sector. His JSE-listed operation is worth one seventh the value of the new baby. I was told that Surve had confirmed but decided late in the day to send colleague Khalid Abdulla to the CNBC Africa studios. But after this piece was published he called to explain there was never any confirmation from his side – so it’s my turn to apologise! Surve’ also says it is unfair to use the JSE-listed entity to judge his ability to deliver the Independent turnaround. The media business is housed in Sekunjalo Investments, a large oil and gas business and  far bigger than the small JSE-listed arm. Look forward to more when we see each other in Davos. For his part, Abdulla tried to put as shiny a gloss on the Sekunjalo Ltd numbers as possible. Not an easy task when the primary determinant of the performance of an investment trust, net asset value, was up a modest 7% (to 96c from 90c) in the financial year; and the share price trades at a hefty 40% discount to its intrinsic value. Is Sekunjalo the undiscovered jewel Abdulla would have us believe? A stock ignored by investors only because they don’t understand it? Is the R175m invested in a biotech company he says destined for Nasdaq a potential boomer or a dud? Read the transcript, watch the interview and you decide. – AH  

To watch this CNBC Africa Power Lunch video click hereKhalid - Sekunjalo

GUGULETHU MFUPHI:  In company results today, Sekunjalo reported a 25 percent increase in full year revenue and a seven percent rise in net asset value per share.  Joining us to unpack the numbers is company Chief Executive Khalid Abdulla.  Khalid, it seems as though it’s been a solid year for you.

KHALID ABDULLA:   We’re quite excited about the results for the year.  I think we have a few key elements of our business.  Firstly, our asset value has come close to the billion rand mark.  Our revenue has broken the R500 million mark, which is also a key area.  Our net asset value per share is close to one rand. The results of the underlying businesses have improved as well, which supports the revenue – the profit has gone up as well as our sustainable cash generation, so we’re quite excited.

GUGULETHU MFUPHI:  Khalid, everybody was looking forward to the inclusion of the Independent News and Media Groups results in your numbers.  Why were they left out?

KHALID ABDULLA:  Well, just to clarify for the market: the Independent Media transaction has been done by our major shareholders so it’s not the entity at a listed company.  However, we’re hoping that in future – there have been many synergies between our existing businesses and the Independent Media business – so just to clarify: the Independent Media sits at a different level of our businesses.

ALEC HOGG:  You aren’t exactly instilling confidence into the people at Independent Media.  I see your media operations, which has a turnover of R78M generated a loss of R7M in this period.  What exactly do you have in that sector?

Sekunjalo's share price has gone nowhere in almost a decade. Long time to be "misunderstood".
Sekunjalo’s share price has gone nowhere in almost a decade. That’s a long time to be “misunderstood”. By PrimeCharts

KHALID ABDULLA:  That business is made up predominantly, of two areas.  The one was in the Travel and Tourism and the second part – as you may or may not be aware – is the Cape Town International Jazz Festival.  That business generates many other synergies for some of our other businesses, but it will become a profitable business going forward.  It used to be a profitable business and we’re moving towards it being profitable again, going forward.  From a confidence point of view, I think we’re taking a medium to long-term view on that one and I think you’ll see some interesting changes there in the short-term.

ALEC HOGG:  So it’s not media in the sense that Independent Media is in newspapers…  Khalid, I think the overall issue that one looks at, at Sekunjalo, is that your share price is at 56 cents and your net asset value is at 96 cents. You’re trading at a massive discount to your net asset value.  Isn’t that a reflection that the market doesn’t think the management is getting these assets to perform correctly?

KHALID ABDULLA:  Well, I’m not quite sure.  Generally, it’s an investment-holding company.  Underlying business, as I said, we’re getting close to a billion rand worth of investments.  Our cash generation has been quite solid.  Our underlying businesses have grown organically, which means that we can run our businesses.  However,  the sentiment would appear from the investment-holding companies, that the market doesn’t understand the business or (2) it’s because we’re a 50/56 cent share – probably discounted. So we’re not quite sure why that is.

ALEC HOGG:  You say the market doesn’t understand your business?

KHALID ABDULLA:  Well, we’re quite diversified and Sekunjalo has deliberately become diversified.  What has happened in the past is that we believe that we shouldn’t put our eggs in one basket.  From a historical perspective and because of diversification – the model is actually working quite well for us because we have – as you understand – fishing, IT, some strategic investments in British Telecom, and in Pioneer Foods.  All of those investments are coming through.  Maybe the market doesn’t like us to be too diversified, but I think it is the more prudent and prospective way to grow the business.

GUGULETHU MFUPHI:  You also mentioned in your announcement on SENS this morning that you’re looking at adding new strategic investments.  What might these be?

KHALID ABDULLA:  On the one side, we used to manage and control many of our businesses and hence our fishing and IT businesses are the areas that we reckon will be the areas of significant growth in future.  On the strategic side: as you know we’ve done the Pioneer deal about a year ago and we’ve done the British Telecom deal about 3 to 4 years ago and we’ll try and grow into the strategic area as well – taking up the 30/40 percent stakes as well.  We believe that, from an operational point of view, we’ve mastered the art in the fishing and the IT business and I think there’s significant growth organically and we will also look at acquisitions.  We have done some minor acquisitions over the last while.  However, as I said we might have some synergies coming in from the Independent Media with our IT business, going forward.

ALEC HOGG:  You didn’t mention Biotech. According to your numbers, R175M is your carrying value there.  You have a market cap of R274M, so two thirds of your market cap is invested into Biotech where there’s no revenue, no income.  What exactly is going on there?

KHALID ABDULLA:  Well, we’ve always known that the Biotech business is a long-term business.  As you are aware, we have approval to list that business offshore.  Obviously, we’re really cognisant of the international market.  Our advisors are telling us that the market is not quite ready for it internationally.  The local market, however, doesn’t understand it – hence we received approval from the South African Reserve Bank to list Biotech offshore.  We’re still taking a medium to long-term view.  It is a business that is there and that we’re trying to extract value from, but at the right time.

ALEC HOGG:  That was Chief Executive of Sekunjalo, Khalid Abdulla.