At what price will Yebo Yethu BBBEE shares trade at?

How much should I sell or buy the Vodacom’s Yebo Yethu shares? Will it be around R94 per share, R56 or R49?

This question will be in the minds of the more than 100 000 investors who hold the Yebo Yethu shares and the people who wish to enter the BBBEE scheme. The scheme’s shares are set to trade on an over the counter (OTC) platform on the Monday, the 3rd of February 2013.

The trading price of Yebo Yethu shares will be determined by the market, the limited OTC trading platform. However analysts have worked out indicative market value using fundamentals of the underlying asset, Vodacom SA.

Remember that Yebo Yethu investors paid in about R25 per shares to enter the scheme in 2008 and the balance was subsidised via loan funding and a discount.

SBG Securities (a division Standard Bank Group) has worked out a rand value per Yebo Yethu share of R94. This came out of an evaluation exercise that assigned total value of R164.74 billion (after deducting net debt) to Vodacom South Africa.

An SBG Securities analyst report dedicated to valuing the Yebo Yethu shares noted that “Thus, given Yebo Yethu has subscribed for 3.44% of Vodacom South Africa, we estimate YeboYethu owns an asset which we estimate may be valued at R5.67bn.”

However, noted SBG, when the BEE deal was concluded, Yebo Yethu received funding (both equity from BEE shareholders and debt from the Vodacom Group) to enable it to purchase the 3.44% stake in Vodacom South Africa. As a result, we reduce the value of Yebo Yethu’s stake in Vodacom SA (R5.67bn) by the value of the debt granted by Vodacom

Group (termed ‘notional funding’).” This was based discounting Vodacom South Africa future after tax cash flows.

“This debt owed by Yebo Yethu amounts to R3.185bn (according to Yebo Yethu’s interim financial statements). As a result, we estimate the net equity value attributable to Yebo Yethu shareholders is R2.482bn.”

Thus, we calculate the rand value per Yebo Yethu share (prior to applying a liquidity discount) as R94, which equates to the net equity (R2.482bn) divided by the number of Yebo Yethu shares in issue (26.4m).”

The SBG report further noted that “However, investors must consider that a Yebo Yethu share will attract a discount relative to its benchmark valuation (Vodacom South Africa) given that there are restrictions placed on the sale of the Yebo Yethu share (you may only sell to another black individual or entity). We focus on this source of potential discount, which we term a liquidity discount (given you may only sell to other black individuals and entities).”

They applied a liquidity discount of 40%. As a result, we estimate the Yebo Yethu share value is R56 per share.

The SBG cautioned that its estimates carry “significant forecast risk”.

“Should Vodacom South Africa perform differently from our underlying assumptions, our estimated value could differ significantly from that presented.”

Valuation by Absa Capital used a different approach and arrived at Yebo Yethu valuation of about R49 per share.

In its Yebo Yethu report Absa Capital said “YeboYethu provides semi-annual financial updates which value the option asset (VSA). The valuation is derived using a Monte Carlo simulation.”

For the year ended 31 March 2013, the value of the Vodacom SA option was R998m. This implies a value per share of R37.83 for YeboYethu.”

Given the Black Public provided R360m of upfront funding, we estimate their shares in the structure are worth nearer 49/share (on an accounting basis)”

Absa Capital did note that “We value the underlying VSA equity at R150bn which equates to 6.7x FY15 EBITDA.”

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