A decision by African Empowerment Equity Investments (AEEI) to list technology hub Ayo on the JSE this week will be a fascinating exercise.
Conditions are not exactly conducive for a new listing, with the market on edge in the wake of the Steinhoff International debacle. In addition, technology sector stalwart EOH has been clouded in controversy.
It is clear from the prelisting documentation that Ayo has a number of transactions lined up that might be clinched quickly — including the acquisition of the valuable 30% of British Telecoms (BT) from AEEI.
AEEI CEO Khalid Abdulla has argued that Ayo companies, which span healthcare data management and digital solutions, are "highly scalable" and that numerous target companies are being engaged. But there remains some scepticism around the company’s ability to raise the envisaged R4.3bn in a private placement ahead of the listing. This would be one of the largest capital-raising exercises seen on the JSE in recent years from a company that at last count carried an AEEI directors’ valuation of R3bn.
For AEEI shareholders arguably the biggest "take-out" from the full 132-page prelisting statement is the long-awaited revelations around BT, an investment that has frustratingly been subject to restrictive confidentiality clauses. Ayo has proposed acquiring 99% of AEEI subsidiary Kilomix, which holds a 29.7% stake in BT, for R1bn.
Closer cooperation between Ayo and BT is on the cards with various outsourcing arrangements being mulled.
The transaction means a chunk of capital, worth the equivalent of more than 200c a share, flows back into AEEI. The question from AEEI shareholders is whether the company, whose investment hub revolves mainly around Ayo and recently listed Premier Fishing & Brands, has plans to further diversify its portfolio, or whether there might be calls for the company to pay out a special dividend.
But the real issue that the market appears to be discounting is Ayo’s inferred value. If the private placement succeeds, there will be 344-million Ayo shares in issue. At the placement price of R43 a share, Ayo will list with a market value of R14.7bn.
That means AEEI, with a reduced stake of 49%, will have a holding at listing in Ayo worth more than R7bn. At the time of writing AEEI’s market value was not even R3bn. This would suggest market expectations for an underwhelming Ayo listing. Ayo has made some bold forecasts to reflect revenue-generating and profit prowess of the new-look business with BT on board.
The prelisting statement quotes Gartner research showing the local information and communication technology market to be worth R174bn. Ayo aims to snag a market share of 5% to 8% by 2022.
The prelisting statement shows revenue forecasts of R4.4bn and R7.7bn for the financial years to end-August 2018 and 2019, respectively.