Piet Viljoen on HCI oil setback: More on why SA can’t have nice things

This piece by BNC#9 keynote speaker Piet Viljoen (founder of Re:CM) looks at three recent HCI developments. Its annual report showed a "masterstroke" of capital allocation — selling properties at full value and using proceeds to buy back shares at a steep discount, extending HCI's long history as a share-cannibal that has grown NAV per share by roughly 16% annually over 20 years. CEO Johnny Copelyn, also a BNC#9 speaker, is retiring, handing over to insider Kevin Govender in a rare example of good succession planning. But the Constitutional Court has blocked Africa Energy's seismic studies off the Transkei coast, a setback Viljoen blames on "shortsighted" environmental activists he says are denying South Africa cheap energy..By Piet Viljoen*.HCI – a Merchant West Investments Value fund holding - has been in the news for the past couple of weeks.Firstly, they released their annual report, which includes their CEO's annual letter. This is always worth reading, and you can find it here from page 8 onwards. Its key message was that HCI sold some of its properties at full value and used the proceeds to repurchase its own shares at a significant discount to their underlying value. This is a masterstroke of capital allocation.Over the years, HCI has been what is sometimes called a share-cannibal - a company that uses free cash to buy back significant amounts of its shares, thereby increasing the per-share value of the business - to the benefit of shareholders. This is HCI's history of shares in issue:.This has been a significant factor in their outstanding track record of increasing their NAV per share by c.16% over the past 20 years – better than the All-Share Index and much better than most (if not all) fund managers..The second newsworthy event was CEO Johnny Copelyn's announcement that he was retiring. Mr Copelyn was always going to retire at some point. But the way he is doing it - by gradually handing over the reins to seasoned insider Kevin Govender, executive director - fulfils one of the most important duties of a CEO: succession planning.Mr Copelyn is a unique individual, and it will be impossible to replicate him. However, he is handing over a portfolio of assets that largely manage themselves. Any significant capital allocation decisions will occur only in several years, when (if?) the oil and gas assets start generating significant cash.So NAV growth may be slower going forward. But at the current discount to NAV of close to 50%, the market seems to be implying that NAV will decline, which I sincerely doubt..Read more:.HCI validates call to add the deep value play to BizNews Shyft and Ricardo portfolios.The third piece of news is that the Constitutional Court ruled against Africa Energy's (an HCI subsidiary) right to conduct seismic studies off the Transkei coast, where a significant gas deposit is believed to be located. The parties who brought the application to stop these studies are a toxic mix of shortsighted social warriors. South Africa desperately needs cheap energy sources, which, if extracted and processed efficiently and responsibly, could raise the living standards of our entire nation. Instead, these so-called "green" environmentalists have chosen a path that will leave many, many people in our country cold and hungry.My take: This is a setback for HCI's efforts to develop an energy business. Time will tell how they handle it, but in the meantime, this is exactly why we, as a country, can't have nice things. It's sad..*Piet Viljoen founded Re:CM. You can subscribe to his weekly newsletter here: https://recm.us11.list-manage.com/subscribe?u=09046ac2b4ae89b21b0cd9c9e&id=b9056c202c.Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox every morning on weekdays. Register here.Support South Africa's bastion of independent journalism, offering balanced insights on investments, business, and the political economy, by joining BizNews Premium. Register here.If you prefer WhatsApp for updates, sign up to the BizNews channel here.

Piet Viljoen on HCI oil setback: More on why SA can’t have nice things

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