Late-blooming entrepreneur Jannie Mouton is a hero to thousands of shareholders who have followed him through PSG, Capitec and more recently Curro. But one of the best performers of all has been the group’s BEE share Thembeka Capital, a stock that is available through the OTC for Previously Disadvantaged Individuals. In this special podcast, BEE share specialist Etienne Nel of Equity Express explains why Thembeka has been enjoying strong buying support lately. – AH
ETIENNE NEL: Thembeka has been on a roll, specifically for the last couple of weeks and definitely a very strong upside share movement there, keeping in mind that Thembeka has exposure to some fairly high profile assets, such as Capitec and Curro, which is the private schools group. If you’re a black investor and you’re looking for some exposure to those particular counters amongst others, then Thembeka might be one to look at. I know my good friend Craig Gradidge quite likes Thembeka and that one’s done quite well with some nice volumes going through in that share last week.
ALEC HOGG: It is an interesting one, given both Capitec and Curro are so highly rated on the JSE.  Is there a way of working out a discount that black shareholders – potential shareholders – would have by buying Thembeka rather than going directly for Curro and for Capitec?
ETIENNE NEL:  Alec, I haven’t had a firm look at Thembeka’s net asset value recently. We’re still waiting for them to do their latest set of results. From what I gather – on the back of a matchbox calculation – you’re looking in the R140.00 level, but keeping in mind that this is a fairly old valuation and they have stocks in there, such as PSG as well as Pioneer Foods. They also have a stake in MTN Zakhele, making it quite interesting, and then some of the co-ops. Most of the co-ops traded trade at a discount as well, so they own a stake in Overberg Agri and Kaap Agri. That therefore makes Thembeka quite an interesting story in that sense, in that some of the shares they’ve invested in also traded pretty deep discounts, so it will be interesting to see what their updated valuation come out…I mean, their year-end is February, so there are numbers on their website showing R113.00/share is slightly outdated. I’d be keen to see what the updated numbers are from those financials.
ALEC HOGG: Yes, so if you are a qualifying shareholder… How do you do that, by the way? Obviously, you have to be black or from the previously disadvantaged group, but how do you qualify? Listening to this and wanting to get a slug of those very attractive underlying shares you’ve spoken about, how do you go about it?
ETIENNE NEL:  Alec, what makes OTC trading fairly complex in the first instance, is the fact that most of the issuers that have their shares traded over the counter do so for a very unique reason in that they wish to have a certain level of control over the type of shareholder. They therefore have unique shareholder rules that they wish to have applied. Now, in Thembeka’s case specifically, they only allow companies that have 100 percent black shareholding at the equity level, so none of the skills and transformation stuff that typically applies to BEE scorecards is allowed. You need to be a 100 percent black-owned company. They do not allow any trusts to invest or stokvels for that matter, and then obviously, black natural person as defined. Typically, you’ll look at black people, Indians, and nationalised black persons, pre-1994.
ALEC HOGG: So if you were thinking of buying Curro, you are in one of those population groups, and you’re prepared to hold on for a while, there really isn’t an option. There’s a good discount here.
ETIENNE NEL:  What you need to do is, obviously, you need to go to the Thembeka OTC website, log on there, and then just follow the registration process, which is fairly simple. You could click on the ‘register to become a new Thembeka shareholder’, complete the online application from, submit the necessary FICA documentation as you would most other financial services institutions, and then you should be registered within about two or three days, providing all your documents are in order. Following on from there, you could commence trading once you’ve deposited your money into the trading bank account.
ALEC HOGG: It’s a big feature of the week as you say the strength in Thembeka. However, the biggest market cap of those stocks on your platform is Phuthuma Nathi, and you have a Phuthuma Nathi One and Two. What’s the difference?
ETIENNE NEL:  Yes, well Alec, it’s quite an interesting story in the sense that there is no difference. What happened is that a couple of years ago, when MultiChoice were looking to raise capital in Phuthuma for their BEE requirements, they created 45 million shares in Phuthuma Nathi One – let’s call it One for lack of a better word. They were quite overwhelmed by the level of subscription they received to the extent that when they issued the allocation letters, most shareholders were only afforded 5360-odd shares at a maximum, so whether you applied for ten million Rands’ worth of shares or one-hundred-thousand Rand’s worth of shares: the maximum you could get to Phuthuma, was 5000-odd shares. That left some heavy hitter shareholders – if you wish – slightly disgruntled and the company actually thought it was a good idea to create a second structure. What they did then is they created Phuthuma Nathi Number Two with exactly the same MOI, same depth structure, and everything else underlying, and created PN2, which has twenty-two-and-a-half-million shares in issue. If you look at the shareholder stratification, originally Phuthuma Nathi One had about one-hundred-and-eight-thousand shareholders, whereas in Phuthuma Nathi Two, there were only about 3900-odd shareholders. It therefore shows you the level or the size of the economic investment that these shareholders have made. What you could then, as a broad rule of thumb, say is that two years ago when they commenced trading by using Equity Express, the smaller shareholders were concentrated in PN1 and the bigger shareholders were obviously – in terms of Rand value – concentrated in PN2. However, for all intents and purposes, the two companies combined own 20 percent of MultiChoice South Africa, and this is vitally important in the sense that some people think its Naspers. It is in fact not, so it’s only MultiChoice SA – none of the African or global operations and then obviously, there’s a level on debt within Phuthuma Nathi, which over time, will obviously be paid off and then shareholders can look forward to a handsome dividend. In addition to that, Phuthuma will never convert into an ordinary share and MultiChoice at this juncture have no intention of ever listing Phuthuma Nathi as a share, so there’s no close-out clause, if you like.
ALEC HOGG:Â What kind of shareholder then would be investing there?
ETIENNE NEL:  Alec, we are seeing some very interesting developments coming through, specifically in Phuthuma Nathi because obviously, a six billion Rand market capitalisation as you correctly pointed out, it’s the largest one that trades on our platform. As a result of the liquidity that is available in the share, we’ve seen some fairly large buyers and very sophisticated investors coming to the platform and putting down some very real money. As a result, we’ve seen a re-tighten double, so where your bid offer is spread is typically between one and two percent – never wider than that, at any given time. For an over-the-counter stock, that makes for some very keen pricing and I’d like to propose that as a result, we’re getting to a very fair reflection of the underlying value of the company.
ALEC HOGG: And always, one sees good volumes in those Phuthuma Nathi stocks, for the reasons you’ve outlined. Again, just to close off with, if you were interested in investing in that share, what is the registration process?
ETIENNE NEL:  Once again, all you need to do is go to www.phuthuma.co.za and you can click on the link to ‘register as a new shareholder’. However, in Phuthuma Nathi, they allow a broad range of shareholders to invest, so corporates need to have 50.1 percent black shareholding at an economic level. They also allow trusts, stokvels, burial societies, investment clubs etcetera, and then obviously, black individuals as a default option, so a very broad group of people are allowed to invest in Phuthuma Nathi, and they’ve certainly made it very easy for black South Africans to go and access to MultiChoice South Africa.
ALEC HOGG:Â Etienne Nel is with Equity Express.