All eyes will be on the MTN Zakhele limited share trading platform today as the over the counter (OTC) trading platform is scheduled to go live this morning at 9am.
The critical thing is: At what price range will the MTN Zakhele shares trade. This question will be resolved by the market, presumably over the next few days.
A moving ruling price will emerge from the virtual negotiations between buyers and sellers. Being a willing buyer willing seller arrangement, the MTN Zakhele trading platform will first see both sellers and buyers make their offers. A match in price offers will make a sale.
As always, sellers will set their offers as high as possible and presumably as close as possible to MTN Zakhele’s net asset value (NAV).
The NAV (value of the scheme assets minus liabilities) per share is a critical indicator (not a dictator) of where these shares should trade. MTN Zakhele’s NAV per share is thought to be seating north of the R100 per share mark.
People in the know have calculated that the value of MTN Zakhele is between R120 and R143. But then this indication does not account for the limited liquidity, level of demand and supply, of the share which may drag down market valuation of the MTN Zakhele shares.
Analysis produced by investment house UBS produced a fair value estimate of R137 per MTN Zakhele.
Another analysis produced by RMB Morgan Stanley said “From an offer price of R20 per [MTN] Zakhele share in 2010, the mathematical underlying value has increased 7x to over R140 due to higher dividends and the appreciation of MTN shares”.
The fair value estimates of MTN are derived from both MTN Zakhele NAV and by tracking the underlying asset of the BBBEE scheme, MTN Group. This is well captured in the UBS report which noted that “We derive a fair value for MTN Zakhele of R137/share, based on the 4% stake it holds in MTN Group (and using our Group target valuation of R390bn). This is less the outstanding NVF and Preference A shares, to drive an implied equity value of R11.1bn for MTN Zakhele, with 80m shares outstanding”.
A qualification is important for these MTN Zakhele fair value estimates. This is well captured in the RMB Morgan Stanley report “[MTN] Zakhele shares will be subject to their own market dynamics including potential discounts for limited liquidity”.
A report by Renaissance Capital addresses a pertinent issue. 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).”