Many people invested in the MTN Zakhele BBBEE scheme are faced with a critical question as is evident from the many comments we have received on this platform, ujuh.co.za. Should I sell my shares?
In truth, no one can answer this question better than you, the holder of MTN Zakhele shares. That is because you know your financial situation better. This is to say the answer must be dictated by your financial position. Speaking to a financial advisor might help.
Having said that; there is one sacred rule that has stood the test of time in the investment world. It is called patience. Off course your investment patience must be well guided. In this case, you must take a view on the prospects of MTN Group, the underlying asset in the MTN Zakhele BBBEE scheme. There is no shortage of professional analysis of MTN Group prospects. Most analysis points to a solid foundation and a stable future for the company which has grown to become the largest telecoms operator in the African continent and with considerable representation in part of Asia.
Remember that MTN Zakhele’s performance is derived from two primary factors, the performance of the MTN Group share price on the JSE and the dividend flow from the very same MTN Group. These two factors dictate MTN Zakhele’s net asset value (NAV). NAV, assets minus liabilities, indicates market value.
A view produced by investment firm Renaissance Capital is most helpful for the question under consideration. The report says “We believe MTN Zakhele shareholders would like to know whether to hold their shares or perhaps sell them and instead acquire common MTN shares”
The report adds that “Compared with an issue price of R20/share, MTN Zakhele’s NAV advanced to R96.67/share by end-2012, or implied capital appreciation of 182%.”
On a comparative basis, the MTN share has appreciated by 71%. At this stage, our preference would be for MTN Zakhele shareholders to retain their shares for the duration of the Empowerment Period (which ends on 24 November 2016).”
The Renaissance Capital analysis added that “Holders of Zakhele shares have clearly seen substantial compound growth in the underlying value of the share since the scheme’s inception.”
However, said the report, we believe the majority of this growth has already been locked in.”
The Renaissance Capital analysis confronts another pertinent question. The question is to this effect. Should I sell my MTN Zakhele shares and instead buy MTN Group shares?
The Renaissance Capital analysis said the swap consideration depends on the expected total return over the empowerment period, between November 2013 and November 2016. In simple terms the analysis suggest that it is better to hold on to MTN Zakhele shares because money invested there is likely to produce a better total return as compared to money moved from MTN Zakhele into MTN Group.
Here is the view in Renaissance Capital owns words. “In terms of P/E ratio, MTN is currently trading at a 6.3% premium to its 10-year historical average. We calculate a potential return of 40% based on a P/E-type valuation and an exit P/E of 13.0x.”
Over the same period, our estimated return on an MTN Zakhele share is 83%. Based on these assumptions, our preference is therefore that, rather than swapping into MTN commons post 25 November, current MTN Zakhele shareholders should participate in the expected growth and NAV of the MTN Zakhele share between now and November 2016.”