Picture: ISTOCK
Picture: ISTOCK

The market doesn’t seem to quite know what to make of comeback kid, African Phoenix — the resurrected African Bank Investments Ltd (Abil) — minus the bank. It was renamed in September last year after its banking licence was revoked.

Shares resumed trade on February 1 following an almost 2½-year suspension, triggered by the curatorship of Abil’s largest subsidiary, African Bank.

A lot has taken place during that time, including SA’s first successful bank rescue.

The new African Bank (the “good” bank, distinct from the “bad” bank, which remains in runoff) launched in April last year
under new management, which has plans to enter transactional banking later this year.

African Phoenix is now an investment holding company with no ties to African Bank and its chain of retail outlets. Instead, it owns two fully impaired assets, Ellerine Holdings and Residual Debt Services (the “bad” bank), as well as a small life insurance company, Stangen.

Stangen, which used to write credit life insurance policies on African Bank loans, has a small retail insurance portfolio, consisting mainly of funeral policies, that earned insurance income of R86m for the year to September 2016.

African Phoenix’s only other “asset” is R1.8bn in cash, but there’s no indication at this stage as to what it plans to do with it.

Recently appointed CEO Enos Banda has said the company’s new brand and strategy will be unveiled in the first quarter of this year.

Banda’s background, which ranges from investment banking to energy regulation, may be cause for interest. He is the founder of an investment and advisory firm, Freetel Capital Group, and the chairman of Letshego Holdings, a financial services company headquartered in Gaborone.

The group’s finance chief, John Evans, was formerly the joint business rescue practitioner of Abil, while Daniël Vlok, an SA Reserve Bank alumnus, and former MMI executive, Morris Mthombeni, are among the board members.

Until the strategy is announced, there’s not much basis on which to value the share, says Jean Pierre Verster, a portfolio manager from Fairtree Capital.

“What’s listed is a small insurance business that is roughly [breaking] even, and a pile of cash on which interest is being earned,” Verster says.

Only time will tell whether African Phoenix rises to those heights

On its first day of trade, the share closed at 52c — a premium to its net asset value (book value) per share of 35.7c.

Some of the initial share-price lift came from traders who needed to cover historical short positions — that is, they had borrowed shares from brokers to on-sell, believing that the price would keep falling and that they would be able to buy the shares back at a lower price, profiting from the difference.

While some settled these positions through over-the-counter trades when the share was suspended, others were caught short.

The price was also boosted by African Phoenix having more than R1.1bn in preference shareholder equity on its balance sheet, which is effectively interest-free capital for the time being, since these are noncumulative preference shares that have a right to a dividend only if a dividend is declared.

A group of preference shareholders are considering taking legal action, however, after they were denied a vote at the African Phoenix AGM where the company’s memorandum of incorporation (MOI) was changed from a bank-holding company to an investment-holding one.

The changes to the MOI should also have included changes to the terms of the preference shares such that they became cumulative in nature, meaning that any undeclared preference dividends would continue to accrue to preference shareholders, says Frédéric Bouchard, a fund manager at Florin Capital Management, who represented preference shareholders at the AGM.

But African Phoenix says that the provisions of the MOI did not in the opinion of the board require a separate preference share vote on the proposed changes, leaving the rights of preference shareholders unchanged.

At the time of writing, African Phoenix was trading at 44c/share, giving it a market capitalisation of just R660m.

“Until corporate action gets going [the stock] is not worth paying attention to,” says Daniel Spoormaker, a trader at BayHill Capital.

“There’s not a story here that’s actionable.”

Certainly, the listed investment holding company model – à la Brait, Remgro, RMH and RMI – has enjoyed great success in SA.

But only time will tell whether African Phoenix rises to those heights.

In a trading statement issued at the end of January, African Phoenix cautioned that earnings per share for the six months to March 2017 were likely to be 90% lower than the previous period, though coming off a very low base to begin with. This was mainly due to StanGen exiting its relationship with African Bank in April 2016.

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