We had a chat with our BEE share specialist, Riaz Gardee about Thembeka Capital and their recent dividend doubling, potential future acquisitions and diversifications. Thembeka Capital currently trades on the OTC Market, with relatively low volumes given its small investor base, however considering its success and the exciting BEE Share market at the moment, we can hope to see volume and gains increasing in the OTC Markets, especially for black investors looking to enjoy returns from stocks that are currently undervalued – LF
RIAZ GARDEE:  A couple of years ago, the guys from Stellenbosch – PSG – put together a company, which they wanted to use for BEE transactions. Most of the transactions they did were with their stable of companies and the companies in their group, but that wasn’t the only purpose. Broadly speaking, they’ve done BEE transactions with companies in their group for example, PSG and Curro Holdings etcetera. They then built up a group with all of these stakes in BEE companies, which is now Thembeka Capital. They own 49 percent and about 500 shareholders own the balance of 51 percent.
ALEC HOGG:  What types of companies, apart from Curro and Capitec…is Capitec Bank in there as well?
RIAZ GARDEE:  Yes, they have Capitec Bank in there. They have Curro in there as well, and I’ll tell you what else…they have Pioneer Foods and those are the big ones. Those are basically, the four big ones, which they have in their portfolio.  They have a few small blocks of MTN Zakhele and they had a little bit of Sasol Inzalo, but these investments largely make up the majority of the value of the entity.
ALEC HOGG: Â How well has it been performing?
RIAZ GARDEE:  I think it performed very well on the back of those underlying investments. The irony here is that many of the investments, which they hold, are listed entities as well, as you very well know. The price of Curro for example, has shot up, Pioneer Foods has shot up, and so have the other ones, too, so it really mirrored the investments, which they own.
LUCIENNE FERREIRA:  Riaz, we’ve seen that their dividend has just been doubled by selling off a couple of minor investments. What is it that we can expect from Thembeka going forward in terms of looking at future investment and growing that portfolio?
RIAZ GARDEE:  That’s a good question. I think they sold out some of their investment, so they have some cash in. They used some of that to increase the dividend. They doubled that to around R1.88 per share and now they have a little bit of a cash pool. I think, what the investors would be hoping for is some big transactions – one or two transactions, probably – to differentiate them and to really add value to the stable of investments, which they have.
ALEC HOGG: Â Transactions that might be outside the PSG Group.
RIAZ GARDEE:  Hopefully…hopefully.
ALEC HOGG:  What kinds of areas would they be looking at, given that they’ve had this boost from the PSG Group from the outset?
RIAZ GARDEE:  Because of their business model, they interact with so many types of businesses, they come across from a corporate finance perspective, advisory perspective or banking etcetera. For example, they have a company in Thembeka, which makes containers for trucks, so they have all kinds of businesses and they have access to that, so I think that within the framework, they probably have a good network of businesses who need BEE or other businesses, too. They have been very good in SACTA allocation, as you saw from their own investments, so their track record is good. I think the market and the shareholders would hope they give them access to different investments, which they won’t be able to bet on the stock exchange.
LUCIENNE FERREIRA:  That’s great. How would they fund these future acquisitions and investments?
RIAZ GARDEE:  I would imagine it would be a combination of debt and equity. As you just mentioned, they sold off some of their investment, so they would have some cash, which they would realise, and on the back of that, they could structure transactions on an individual basis.
ALEC HOGG:  What about the price? Thembeka doesn’t trade that often on the OTC. Is the current price level attractive?
RIAZ GARDEE:  Thembeka has about 500 shareholders in total, so that’s not a very large number of individual shareholders, which is probably the reason for the low level of trade. Coming to the price and the value, the intrinsic value of the shares are around R155.00 and it’s trading at about R130.00 today – so roughly, 16/17 percent discount. Remember. Typically, investment holding companies do trade at a discount in any event. The price has therefore moved up quite sharply in the last couple of months to correlate to the underlying value, so it’s not as cheap as it was a couple of months ago.
LUCIENNE FERREIRA:  But it’s still a hot pick for investors who are looking to get in.
RIAZ GARDEE:  It would be, providing you’re happy with the four main investments they hold, viz. Capitec, PSG, Pioneer Foods, and Curro Holdings. Remember that if any of those go down significantly, it will obviously affect them better, correspondingly.
ALEC HOGG: Â They have an underlying value of R155.00: is that based on the JSE price of those four investments?
RIAZ GARDEE:  Yes, that’s right.
ALEC HOGG:  All right, so it’s not really giving you much benefit as a black investor into Thembeka Capital because as you said earlier, most holding companies already trade at a discount, for example, Rembrandt.
RIAZ GARDEE:  Yes, and that’s why I was saying…hopefully, they would do something different with the money, because any of these investors can buy these companies on the JSE as well. I think they would have been fortunate, having gotten in at the ground floor with Thembeka, but nothing’s stopping anyone from buying these companies in the market today, at the prices at which they’re trading.
ALEC HOGG:  What about a guy like KK Combi? Have you had much to do with him?
RIAZ GARDEE:  Well, I read about him and I saw his track record. I think he was an Ernst & Young Entrepreneur of the Year as well, in the past. He has a good track record and I think it’s now up to him to show what he can do with the excess cash they have on their balance sheet.
LUCIENNE FERREIRA: Â In terms of what KK has been presenting to the public, what is it that we can expect his vision to be, of Thembeka?
RIAZ GARDEE:  Well, he’s an entrepreneur, so I would think he would go into companies, which require an entrepreneurial flair. I would think he’d look at operational companies, which need BEE and have high growth prospects.
ALEC HOGG:  So if you’re buying into Thembeka Capital, in summary you have a positive view on those four shares you mentioned (PSG, Pioneer, Curro, and Capitec) and you’re backing KK Combi’s entrepreneurial flair, too.
RIAZ GARDEE:  In essence, if you bought Thembeka, that’s what you would be doing.
ALEC HOGG: Â Would you be buying them today?
RIAZ GARDEE: Â I think the fact that Curro and Pioneer etcetera have run up so high, and the discount to Thembeka is not as large, I would probably, personally look at other BEE where the discount is larger.
ALEC HOGG:  And those being…what’s your pick?
RIAZ GARDEE: Â For example, MTN Zakhele has always been a favourite and the price just seems to be going up and up.
ALEC HOGG:  So that’s the one – MTN Zakhele would be the preferred option at the moment, but Thembeka Capital for the long-term.
RIAZ GARDEE:  Definitely. Definitely.