MTN Zakhele postponed trading: could it be a blessing in disguise?

Craig-Gradidge

The delay in the listing of MTN Zakhele has been widely criticised by shareholders waiting to trade months after the promised date. But it’s not all bad. In this thoughtful contribution, BEE share specialist Craig Gradidge argues that there is a bright side to the postponement. And uses hard numbers to support his view. – AH   

By Craig Gradidge*

I remember the Rugby World Cup 2011 very clearly for a few reasons. Besides being one of the more entertaining world cups I have watched and that it was being played in New Zealand, it was the game between SA and Wales in the round robin stage that always comes to mind.

Early in the first half, Welsh fullback James Hook lands what looked to be a legit penalty, but for some bizarre reason English ref Wayne Barnes waved play on and Wales were not awarded the three points. The Springboks would go on to win that match by one point. This all went down on 11 September 2011. Springbok supporters breathed a collectively sigh of relief and the defence of the cup was underway on a winning note. Or so we thought…

Fast forward to 09 October 2011, and the Springboks are unceremoniously dumped out the competition by the Australians after being ably assisted by one Bryce Lawrence. The Springboks dominated that match and should have won it quite comfortably. Wales on the other hand got through their quarter final match against an uninspiring Irish team that had surprised the rugby world a few weeks earlier when they defeated Australia in the group stage.

Had Wayne Barnes done his job properly and awarded Wales the three points, it may have resulted in South Africa meeting the Irish in the quarters, the French in the semis, and a repeat of 1995 could have been on the cards. Instead the boks were watching the semis and finals from the comfort of their lounge suites.

So what looked to be manna from heaven turned out to be something of a poisoned chalice in the end. Not so for MTN Zakhele* (MTNZ) shareholders. The MTNZ trading platform opened for trading late November 2013 and turned out to be something of a disaster for existing and prospective investors alike. The platform supposedly buckled under the strain of high volumes, and was ultimately shut down after only a few days of trading.

The trade that did happen saw MTNZ shares trade hands at between R70 and R90 a share while MTN was trading at around R190 a share. MTNZ website showed a NAV of R104 and was being valued at between R120 and R146 a share on a forward looking basis by a number of analysts.

Since trade has been suspended in MTNZ the MTN share price has experienced a nice increase in value and currently trades around the R212 a share level. At R212 per MTN share, we get a NAV for MTNZ at over R130 a share. This means that if the MTNZ trading platform were to re-open today, then existing MTNZ shareholders should be asking for a much higher price than R80 a share.

If the shares trade at R80 while MTN is trading at R212, it would mean that MTNZ shareholders are offering a discount of 38% to NAV to buyers. This is good news for buyers, and a bit too generous from sellers. MTNZ has less than 3 years to go before the empowerment period ends and MTNZ shares are converted to MTN shares. At that point the discount would disappear and holders of MTNZ stock would experience a capital windfall of over 60% from just the disappearance of the discount.

While we accept that MTNZ shareholders should be offering shares at a discount to NAV, we believe that a discount of 38% is too generous. A more reasonable discount of around 25% should still be enough to entice buyers. Phuthuma Nathi trades at a discount of over 50% to forward looking valuations, however, there is no term attached to that deal. So the discount is justifiable on that basis. However, when there is less than three years to go on a deal with a quality underlying business, a strong balance sheet and good fundamentals, the discount should be narrower. A discount of 25% to NAV should see MTNZ shareholders offering their shares at around R97 a share and not R80 a share.

While the closing down of the MTNZ platform has been a major disappointment for many, it may just turn out to be a blessing in disguise. While we cannot turn the clock back and give Wales the victory that would give the Springboks an easier route to the final, we can count our blessings as MTNZ shareholders and perhaps get an even better deal from the mess that has been the MTNZ trading platform.

* Craig is co-founder of Gradidge-Mahura Investments, a new generation financial planning and wealth management business based in Melrose Arch. He has 18 years industry experience and specialises in Investment and Retirement Planning. He is a Certified Financial Planner©  writes regularly for various financial publications. Follow him on @gradidgec or email him at [email protected]

 

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