What should I do with my Welkom Yizani shares?
That is the question posed by many investors in the Naspers/Media24 BBBEE scheme which has so far caused pain to more than 100 000 participants.
The most logical thing to do is to hold on.
The Welkom Yizani shares were this morning trading at R10.00 per share which is equal to the amount paid by investors seven years ago. Some investors have sold their shares below the R10.00 mark which means they have lost money, capital value, in this investment.
It makes no sense to sell these shares at the prevailing levels. More so if you consider the fair value of Welkom Yizani shares as issued by investment experts.
The latest of these valuations came from the research division of UBS. The firm has calculated that the net asset value of Welkom Yizani shares is estimated around R26 per share. They arrived at this price by firstly calculating the value of the target asset Media24.
UBS contends that the equity value for Media24 is at R5.7bn. This, said the firm, implies a value per Media24 share of R56.9 and given 97m Media24 shares in issue.
Welkom Yizani holds 15% of Media24 which means that their share in the R56.9bn implied value is about R851m. But then there is debt in the Welkom Yizani structure amounting to about R462m.
Stripping out the debt UBS came to a net asset value of R26.20 per Welkom Yizani share.
UBS did caution that “the share price for Welkom Yizani will be limited by liquidity constraints, and as such may not provide a very accurate look-through valuation for Media24…”
This view is in line with the earlier valuation conducted by Avior Research which put out a R24.59 per share valuation of Welkom Yizani. Avior did issue a caution as well saying “However, much as is the case with the Phuthuma Nathi scheme, we expect that Welkom Yizani will trade at a steep discount to its fair value as a result of the fact that:
- Welkom Yizani shares can only be sold to qualifying black persons/groups having a similar or higher BEE status/rating than the seller;
- Transfers are subject to approval by the Welkom Yizani Share Transfer Committee;
- Shares will trade OTC, further limiting liquidity; and
- Ordinary dividend levels imply a moderate ordinary dividend yield.
Avior added that “As an example, a discount of 50% to our estimated fair value estimate would imply a trading price of R12.29 per Welkom Yizani share. As and when the preference debt within the Welkom Yizani structure is paid down, the unwind of financial leverage will enhance investor returns, while a degeared structure should ultimately trade at a lower discount to fair value, all else being equal.”
In light of this analysis, the most reasonable thing to do is to hold on to the Welkom Yizani shares. Unless you think you can move the money invested in Welkom Yizani shares elsewhere and quickly create superior value compared to the one that is presumably embedded in the Welkom Yizani structure.
The opinion in this piece is a journalistic analysis and must not be taken as a financial advice.