A great update on the performance of BEE shares throughout 2014, Craig Gradidge was in the CNBC studios today with Alec and Gugu to discuss, amongst others, the movements of broad-based BEE shares including those of Sasol Inzalo, Multichoice’s Phuthuma Nathi and MTN Zakhele. They chat about Sasol’s less than desirable performance considering the current state of the oil market, but Craig believes that patience is key, much can change in three years. They wrap up with the real performers of the year; Thembeka Capital and Vodacom’s YeboYethu. – CH
GUGULETHU MFUPHI:Â You are still watching Power Lunch. Craig Gradidge, co-founder of Gradidge-Mahura Investments, joins us now to review the performance of BEE shares in 2014, as well as an outlook for their performance this year. Well, maybe before we get into the nitty-gritty…
ALEC HOGG:Â I wish they could have seen what was on that autocue.
GUGULETHU MFUPHI: Well, it’s a good thing that we can change it, hey Alec. Maybe let’s pick up on Sasol because that’s certainly in everyone’s eyes, and list definitely, and it seems as though the SOLBE1 shares have also reacted and the Inzalo share price too.
CRAIG GRADIDGE: Yes, hi Gugu and hi Alec, it’s been an eventful year for broad-based BEE shares. I think the regulatory environment certainly changed quite a bit, but if we look at Sasol in particular, the oil price dominating news at the moment, and markets at the moment. I see Sasol is below the discounted price that it offered shareholders the day it did the deal.
ALEC HOGG:Â Just explain that.
CRAIG GRADIDGE: So, when the deal was done, Sasol Inzalo and the entire BEE deal. Sasol was trading at over R420.00 a share, and the shares were offered to investors at R366.00. Now it is at R365.00/R364.00 a share.
ALEC HOGG: So that’s worth nil…
CRAIG GRADIDGE: At the moment, yes, no, not necessarily, because these deals have a term attached to them, so it’s the price, at the end of the period that matters the most.  At the moment, there is very little value in those shares.
ALEC HOGG: Craig what about re-pricing? If you consider that, it did happen with share options, at a period of time, after the crash of 1997/1998. Do you think that’s a possibility that Sasol or other companies might re-price, to give shareholders some upside?
CRAIG GRADIDGE: Yes, as I mentioned, it’s the price at the end that matters, so they don’t have to do anything now, also you’ve still got three years, particularly in terms of Sasol, so it’s the price in September 2018 that matters. They have refinanced the debt, so that was one of the features of last year, was they looked at the debt structure of Inzalo and there was a bit of restructuring on that side. Marginal benefit but certainly cheap at the cost of debt associated with that deal.
GUGULETHU MFUPHI:Â What about the DIVI because so often Sasol has been known to be quite a good dividend payer?
CRAIG GRADIDGE: Yes, so if you went into the discounted scheme, the one that’s listed on the JSE, you got the same DIVI as the ordinary shareholder, and because it’s a discounted scheme, that DIVI yield is quite attractive. For Sasol Inzalo it paid its first dividend last year, and for investors that went in when the deal was done, that DIVI amounted to over ten percent of what they initially paid. There has been some DIVI flow. I think the biggest DIVI flow has, certainly been to Phuthuma Nathi shareholders, where they’ve recovered the full cost of the investment in dividends alone.
ALEC HOGG: How’s the MTN Zakhele story going?
CRAIG GRADIDGE: Zakhele was also a feature of last year. The trading platform had significant problems, when they started, but they seemed to have resolved that over the last festive season, and I think it was the end of January, early February, when they started trading and trading has gone quite well. For the calendar year, it did (in the calendar year) it did in the region of about 20 percent. No DIVI on MTN Zakhele. That’s how the deal was structured, but it has subsequently given up quite a bit of those returns, and then partly, due to the impact of the oil price on the Nigerian economy, where they have significant operations.
ALEC HOGG: We were talking beforehand, about the whole OTC and how things are changing there, the regulatory regimes. What’s your take on that or, perhaps an update?
CRAIG GRADIDGE: Yes, I haven’t seen any updates since; I think it was September, where the FSB invited the various companies to apply for exemption. We haven’t had feedback on that process, as yet. I think most of them applied for exemption. Thembeka Capital used it as an opportunity to actually, unwind their deal and that happened this Monday past, where Thembeka shareholders received PSG shares, one-point-seven PSG shares for every Thembeka share they held.
ALEC HOGG:Â Was it a good investment for them?
CRAIG GRADIDGE: It was outstanding. In fact, it was the best performing of the broad-based BEE shares last year, and investors, I think they did about a 600/700 percent return over the period, since 2007, out of Thembeka, so it’s been a fantastic deal for investors. So that regulatory, the change in the regulatory environment, in that instance, proved to be a catalyst for some value-unlock.  We’ll see what happens when we get the next round of feedback.
ALEC HOGG:Â Very quickly, what would you be going into now?
CRAIG GRADIDGE: A tough one. If you’re income hungry, Phuthuma Nathi, I’d wait and let the Sasol thing play out a bit, and maybe go into the SOLBE1’s, which are the discounted ones, not the heavily funded ones, and maybe the YeboYethu, which is also heavily funded but the underlying investment is Vodacom, South Africa, which is highly cash generative. That combination is what worked well for Phuthuma Nathi and I think it could work well for YeboYethu, going forward.
GUGULETHU MFUPHI: Great. Thanks so much for that update. That was Craig Gradidge, from Gradidge-Mahura Investments.
