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Focus On: Private-public investment at Richards Bay Industrial Development Zone

Game Changers: The growth of culinary dining in Rwanda

Game Changers: Bag Innovation: The gateway to curbing unemployment in Rwanda

Game Changers: Youth: A catalyst for economic growth

Game Changers: Unlocking Rwanda’s agro-processing potential

Game Changers: The important role of SMEs in Rwanda’s economy

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Most businesses are thought to have a ready succession plan but according to FNB that&#8217;s not necessarily the case. Joining CNBC Africa for more is Palesa Mabasa, Commercial Segment Head for Gauteng South West at FNB.

FNB: Why succession planning is pivotal for small businesses

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Africa is one of the fastest-growing consumer retail markets in the world. It’s full of economic potential that lies within the informal retail sector. Nomanini, Nestlé and Standard Bank have partnered to give informal small businesses a boost, across the Eastern and Southern Africa Region. Joining CNBC Africa to discuss unlocking business opportunities is Vahid Monadjem, CEO &#038; Founder of Nomanini.

This initiative is empowering informal retail traders across the Eastern & Southern Africa Region

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As the Kingdom of Eswatini moves to gradually reopen its economy from its Covid-19 lockdown, the landlocked country has announced new measures to support businesses hard hit by the pandemic. These include relief of R90m for SMME’s, tax deferments and waiving penalties on late debt. Eswatini’s Minister of Commerce, Industry and Trade, Hon. Manqoba Khumalo joins CNBC Africa for more.

COVID-19: What Eswatini is doing to support its businesses

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Small businesses all over the world are feeling the pinch from the COVID-19 pandemic with many feared to go bust. The latest research from fintech group Yoco shows that small business revenues in South Africa have plunged over 84 per cent as the virus grinded economic activity to a halt. Joining CNBC Africa for the latest numbers on the status of SMMEs is Bradley Wattrus, Co-Founder and CFO of Yoco.

COVID-19: What the stats say about the impact on SA’s SMMEs

By Miyelani Mkhabela



The COVID-19 crisis is disrupting supply and demand at the same time, with severe financial consequences. To not only survive the crisis but also rebound swiftly, companies must protect their liquidity position and focus on their core competencies and businesses



Leaders can better prepare for the next shock by observing lessons emerging from the current crisis. Shutting down was hard, but opening up is going to be harder. Your workers are always your most valuable asset and it’s not the best times to lose them during the crisis, as rebuilding your operations is going to be even more difficult, you want to maintain your ability to rehire your best workers when the world is open for business again.



&nbsp;Statistics South Africa reported that Four in ten businesses feel that they cannot continue to operate: When asked about financial resources, 42,2% of respondents indicated that they are not confident that they have the financial resources to continue operating through the COVID-19 outbreak and 54,0% of respondents indicated that they can survive without turnover between one to three months. The doors of Tourism &amp; Hospitality; Sports; education, Retail; Entertainment are closed while manufacturing; Mining; Cargo and Logistics will also suffer in 2020.Small businesses based on their investments cannot manage the complexity of Covid19; large corporates are also struggling, yet risk can be minimized.



To set the scene, large numbers of small businesses have shut down and laid off huge numbers of workers; most are extremely cash strapped. The majority think they will be able to reopen by the end of 2020, but others are less certain. Small businesses disagree, a lot, about how long the crisis will last. Small businesses needs business continuity management, adaptation to technology and talent retention



&nbsp;It will be years before we fully comprehend the economic impact of the coronavirus, but one thing is painfully clear right now: Small businesses across South Africa and the rest of Africa markets are facing an existential threat. It will get a lot worse before it gets better for the African continent.



Here are a few tips for survival:



1. Carefully the prospective impacts of government plans to help small and medium enterprises (SME).



2. Help the business by deciding how to work with customers.



3. Regularly reassess credit worthiness: companies should continuously monitor the financial health of all but the safest customers.



4. Strictly monitor supply inventory through support functions to assess the cost of supplies and support functions that have access to a digital marketplace.



5. Recommendations to business on how to adjust the product offering. Companies should aim to deliver fast-selling products to priority customers for as long as possible, but they should also assess their product offering.



6.&nbsp; Investment and credit will be attractive



7. Adoption of an active operations management systems



8.&nbsp; Figure out how the needs of your customers needs have changed.



9. Don’t rush your decisions, but do make plans.



Finally, this is a time to be more client centred. Small businesses are highly required to meet customer expectations or satisfactory levels, while operating virtually has many disadvantages and misunderstandings, however, client’s service delivery standards still needs to be achieved. Generosity during a crisis can make a relationship far stronger. Small businesses are facing unprecedented struggles, and banks and policymakers must step up to help SME&#8217;s.



Miyelani Mkhabela is an Executive Director of Antswisa Transaction Advisory Services.

miyelani mkhabela

Nine ways you can try to save your small business post COVID-19.

South Africa’s Minister of Small Business Development, Khumbudzo Ntshavheni, has issued <a href="https://www.cnbcafrica.com/videos/2020/04/07/sa-launches-green-fund-to-drive-investment-into-smmes/">directions aimed at helping SMMEs</a> operating grocery stores in the country, including corner shops, spaza shops and fruit and vegetable stores, comply with the government’s COVID-19 lockdown regulations.



SMME grocery stores are permitted to operate during the lockdown period irrespective of the nationality of their owners provided that they meet the following requirements listed in the statement below.



The following is a statement on behalf of South Africa’s Ministry of Small Business Development:



MEDIA STATEMENT



DIRECTIONS TO ASSIST SMMEs OPERATING GROCERY STORES, CORNER SHOPS, SPAZA SHOPS TO COMPLY WITH COVID-19 LOCKDOWN REGULATIONS



Minister of Small Business Development (DSBD), Khumbudzo Ntshavheni has, in terms of section 27(2) of the Disaster Management Act, 2002 (Act No. 57 of 2002) issued Directions aimed at assisting SMMEs operating grocery stores including corner shops, spaza shops, fruit and vegetable stores to comply with the COVID-19 Lockdown Regulations.&nbsp;



In terms of the lockdown regulations, all enterprises operating within the boarder of the Republic of South Africa are expected to close during the lockdown period except for enterprises which are designated as providers of essential goods and services as per Annexure (b) to the lockdown regulations.



The Minister would like to point out that in terms of the recently gazetted Directions, grocery stores which include corner shops, spaza shops and fruit and vegetable stores are permitted to operate during lockdown period irrespective of the nationality of the owners provided that they adhere to the following:



<ol class="wp-block-list"><li>Must hold permits issued by their respective local municipality allowing them to trade in line with the provisions of the Business Act 71 of 1991 as amended.</li><li>No person may stay overnight in the grocery store as this in contravention of the Food Safety and Health Standards.</li><li>Only the sale of food staff and basic necessities is permitted, grocery stores must not sell products or goods that are prohibited by the lockdown Regulations.</li><li>The grocery stores must uphold the Health and Hygiene requirements by:</li></ol>



<ul class="wp-block-list"><li>Maintaining a social distance amongst customers and between the trader and customer of at least 1-metre.</li><li>Disinfecting and sanitizing trading spaces in line with the directions issued by the Department of Health.</li><li>Spaza shop owner and informal food traders currently trading without permits may apply for temporary permits, and in case of Non-South African citizens, the business owner (a) must have been lawfully&nbsp; residing in the republic and must hold a valid passport with a visa issued by the department of Home Affairs in terms of section 10 of the Immigration Act, 2002 (13 of 2002), authorising him or her to operate a business (b) must alternatively hold an asylum seekers’ permit issued in terms of section 22 of the Refugees Act, 1998 (Act 130 of 1998), which allows him or her to work. Permission to operate will be linked to the period covered by the asylum seekers’ permit.</li></ul>



The Informal Food Traders as referred to in the Regulations are limited to Fruit and Vegetable informal traders and the Langanas, who operate in the Northern Cape and Western Cape.



All enterprises referred to must ensure that they have absolute minimum number of staff necessary to safely operate the enterprise. Furthermore, employers are encouraged to provide transport for their employees during the lockdown period.



SMMEs wishing to enquire on information to clarify their status as rendering essential services or providing essential goods may contact the Department of Small Business Development (DSBD) on 0860 663 7867, alternatively send their queries to <a href="mailto:info@dsbd.gov.za">info@dsbd.gov.za</a>.



Enquiries: <a href="mailto:Media@dsbd.gov.za">Media@dsbd.gov.za</a> / +27 (0) 66&nbsp;285 0481



Issued by GCIS on behalf of



The Ministry of Small Business Development



07 April 2020



For more coverage on COVID-19 visit: <a href="https://www.cnbcafrica.com/covid-19/">https://www.cnbcafrica.com/covid-19/</a>

Africans singled out in southern China sparks diplomatic backlash

SMME grocery stores permitted to operate during South Africa’s COVID-19 lockdown

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R488 million – that’s how much the Green Outcomes Fund has set aside for fund managers to increase investment in green Small, Medium and Micro-sized Enterprises. To discuss the fund &#8211; the first of its kind, CNBC Africa is joined by Tine Fisker Henriksen: Innovative Finance Lead, UCT GSB Bertha Centre and Mark van Wyk: Head of Unlisted Investments, Mergence Investment Managers.

SA launches green fund to drive investment into SMMEs

In a bid to mitigate the impact of COVID-19 on South Africa’s tourism sector, the Department of Tourism is urging eligible small, micro and medium-sized enterprises (SMMEs) to apply for a share of the R200 million Tourism Relief Fund.



The following is a statement by South Africa’s Department of Tourism:



MEDIA&nbsp;STATEMENT



TOURISM RELIEF&nbsp;FUND OPEN FOR APPLICATIONS



The Department of Tourism&nbsp;encourages eligible businesses to apply for the COVID-19 Tourism Relief Fund during the application period from 07 April to 30 May 2020.



Established as an intervention to mitigate the impact of COVID-19&nbsp;on the tourism sector, the R200 million Tourism Relief Fund provides once-off capped grant assistance to Small Micro and Medium Sized Enterprises (SMMEs) to ensure sustainability during and post the implementation of government measures to curb the spread of Covid-19 in South Africa.&nbsp;



“We acknowledge the difficulties experienced by businesses during this time, hence the need to support the industry and communities to cope with the negative effects of this pandemic,” said Minister of Tourism, Mmamoloko Kubayi-Ngubane.



“Our tourism industry is comprised of mainly SMMEs, most of which are survivalists in nature, with limited access to funding from commercial institutions. We hope the support offered through the Tourism Relief Fund will assure the continued survival of SMMEs beyond the COVID–19 pandemic.”



Capped at R50 000 per entity, the grant funding can be utilised to subsidise expenses towards fixed costs, operational costs, supplies and other pressure cost items. Preference will be given to enterprises with the highest score in terms of the criteria, which serve as a pre-qualification. A panel of experts will conduct the final evaluation in terms of functionality.



Guided by the Tourism Broad Based Black Economic Empowerment (B-BBEE) Codes of Good Practices approved by the Minister of Trade and Industries in 2015 (in line with the B-BBEE Amendment Act No. 46 of 2013), the Tourism Relief Fund is administered in line with the objectives of Economic Transformation, and our vision to ensure sustainable and inclusive tourism development. The disbursement of funds will ensure equitable spatial distribution in terms provinces.



Categories eligible to apply for the Tourism Relief Fund include the following:&nbsp;



<ul class="wp-block-list"><li>Accommodation establishments: Hotels; Resort properties; Bed and Breakfast (B&amp;B’s);&nbsp;Guest houses; Lodges and Backpackers.</li></ul>



<ul class="wp-block-list"><li>​Hospitality and related services: Restaurants (not attached to hotels); Conference venues (not attached to hotels), Professional catering;&nbsp;and&nbsp;Attractions</li></ul>



<ul class="wp-block-list"><li>Travel and related services: Tour operators; Travel agents; Tourist guiding; Car rental companies; and Coach Operators.</li></ul>



Visit our website&nbsp;<a href="http://www.tourism.gov.za" target="_blank" rel="noreferrer noopener">www.tourism.gov.za</a> for comprehensive information on the Fund terms and qualifying criteria. SMMEs can submit funding applications by completing a form accessible online at <a href="http://www.tourism.gov.za/Pages/COVID19tourismrelieffund.aspx" target="_blank" rel="noreferrer noopener">www.tourism.gov.za/Pages/COVID19tourismrelieffund.aspx</a>



Inquiries on the fund can be emailed to <a href="mailto:callcentre@tourism.gov.za" target="_blank" rel="noreferrer noopener">callcentre@tourism.gov.za</a> or <a href="mailto:covidrelief@tourism.gov.za" target="_blank" rel="noreferrer noopener">covidrelief@tourism.gov.za</a> . Alternatively contact our call centre telephonically on 0860 TOURISM (868 747) weekdays from 08:00 – 22:00.



For media enquiries: Hlengiwe Nhlabathi-Mokota on Email:&nbsp;<a href="mailto:hnhlabathi@tourism.gov.za" target="_blank" rel="noreferrer noopener">hnhlabathi@tourism.gov.za</a> or call 064 754 8426



Issued by the GCIS on behalf of the Department of Tourism



07 April 2020



For more coverage on COVID-19 visit: <a href="https://www.cnbcafrica.com/covid-19/">https://www.cnbcafrica.com/covid-19/</a>

Administrators propose sales plan for SA retailer Edcon, see potential job cuts

South African COVID-19 Tourism Relief Fund open for applications

Amid the global COVID-19 pandemic and 21-day lockdown faced by South Africans, First National Bank has announced <a href="https://www.cnbcafrica.com/videos/2020/04/03/sas-banks-reveal-how-small-businesses-can-apply-for-the-r1bn-oppenheimer-fund/">additional measures to assist small and medium-sized enterprises</a> battling with funding in the country.



In addition to the implementation of financial relief systems for individual and business customers, FNB has expressed commitment towards assisting SMEs through, “alternative funding support, critical business support resources, links to various government resources and private funding initiatives.”



The following is a statement on behalf of First National Bank:



FNB extends additional help to assist SMEs with alternative funding and resource support



6 April 2020 – In addition to the various COVID-19 measures implemented to provide relief to individual and business customers, FNB has further committed to helping small businesses with alternative funding support, critical business support resources, links to various government resources and private funding initiatives.



Given the various relief interventions needed by small businesses across different sectors, FNB has launched a portal under the “COVID-19 – For My Business” menu on the FNB App or Online Banking, where SME customers in need of help can register their requests for assistance.This will enable the bank to obtain information and present potentially relevant relief solutions.



“The first phase of alternative funding that we are excited to make available to SME customers via the portal is from the South African Future Trust (SAFT), a Public Benefit Organisation established by Nicky and Jonathan Oppenheimer to extend financial assistance to employees of South African SMMEs who are at risk of losing their jobs or will suffer a loss of income because of COVID-19,” says Jesse Weinberg, Head of the SME Customer Segment at FNB.



FNB has received a range of queries from SME customers on various topics from SMEs, from assisting them with cashflow relief on their existing credit and merchant services facilities with the bank, to general requests such as resources and guidance on obtaining alternative funding support for their businesses.&nbsp;



“Requests registered by SMEs through our portal will enable us to rapidly assess the situation and requests of these businesses to determine possible financial and non-financial assistance that could help them,” adds Weinberg.



A challenge for many small and medium-sized businesses is that they often have limited access to funding, whether in the form of bank credit or alternative sources. In times of an economic down-turn or crisis, these businesses are some of the most vulnerable as they generally have less access to liquidity to weather the storm than larger businesses.



FNB SMEs can register their interest to apply for the South African Future Trust (SAFT) funding by completing the SME assessment found under the “COVID-19 – For My Business” menu on the FNB App or FNB Online Banking.



SMEs who meet the following criteria could be eligible for the funding as determined by SAFT:



<ul class="wp-block-list"><li>The business has an annual turnover below R25m</li><li>The business can clearly demonstrate the impact of COVID-19 on their operations; the business must have been in good financial health prior to 1 March 2020.</li><li>The business must have been trading for at least 24 months</li><li>Confirmation of permanent employment status of employee</li><li>The business must have its main bank account with FNB and be in good standing with the bank; demonstrated sound banking behaviour maintained a good credit history</li></ul>



For more information on SAFT visit <a href="https://secure-web.cisco.com/1s3rkD1cj8AGmG18fuJ2x_AyOubeXbdWvhiXPo8wZ_fmWLNsrU01mXeBoxjCwGmtfWv0_7G5MnIEPL_jXEIIIUVQ93d3CyIARz5pRNgDbia73tmakzFlkFJDMQmUIp81qp2Ws3DkUNZlwngU0dQCKCk85ggzzNgh1omemqUvK287zcye7g3WZf8AX8ROyIEsVmeJPFiiq58tRsXlTsTvwIzxaC5SYIJB9WSr4dJcgOMy0hJ-vC35u4l02Q7YJ5XHxP25MtZ9Fq-SW1y9D2B3bt0b9czIZr6VkYTK5dqRoViPNPfbPXoJMCSr7WDOAdJxxWL66c87g7X50OzKbZGyKog/https%3A%2F%2Fopp-gen.com%2Fsaft%2F">https://opp-gen.com/saft/</a>



“As announced in President Cyril Ramaphosa&#8217;s address to the nation, we have pledged R1bn to extend a financial lifeline to employees of South African Small, Medium, and Micro-sized Enterprises (“SMMEs”). Our aim is to mitigate the immediate economic impact of the COVID-19 crisis by keeping companies in business and protecting jobs, in order to fast-track South Africa’s economic recovery after this pandemic. Our response, in collaboration with the South African Government and private sector, is to create a structure that will extend direct financial support to SMME employees who are at risk of losing their jobs or will suffer a loss of income because of COVID-19,” said Nicky and Jonathan Oppenheimer.



“In much the same way as our SME clients are dealing with unprecedented uncertainty, we too realised we also needed a different approach to respond to the crisis and try extend help our SMEs in a more holistic way,” concludes Weinberg.



For more coverage on COVID-19 visit: <a href="https://www.cnbcafrica.com/covid-19/">https://www.cnbcafrica.com/covid-19/</a>

FNB extends aid for battling SMEs in South Africa amid COVID-19, lockdown

By Stephán Engelbrecht, Fund Management



The world is entering an unprecedented time and there is no historical playbook for what happens next. While not our base case, calamity risk is increasing (mass infections across South Africa [SA], with dire economic consequences), and nobody knows how to quantify this risk. We have many requests from clients asking for investment opportunities in this crash and we are happy to share our fundamental views. However, investors in any equities must bear in mind that, in the shorter term, cheap shares can get even cheaper and wild swings are likely. Our views are based on a 12-to 24-month timeline, with a base case scenario of the world normalising during this time period. So, risks have to be taken into account and any investment in equities should be considered in this context. Shares only become this cheap when risks are extremely high.



In times of extreme market volatility (and corrections), it is often unnecessary for investors to look far down the quality curve to find attractive opportunities that will generate significant returns in future. This is oftentimes the correct strategy as those economic uncertainties causing market volatility can have far more dire consequences for lower-quality businesses. This can make a company look inexpensive on the surface, but the upside might be limited as the business first has to struggle through an earnings trough, or raise equity to shore up its balance sheet which will, in turn, dilute current shareholder returns.



However, sometimes it is worth taking the risk. During market corrections, fundamentals are often ignored, and some market participants will sell a share at any price. It is at these prices where, we believe, the risk-return profile is so attractive that these counters deserve a small allocation in a diversified portfolio. These calculated risks may just turn out to be some of the best performers in an investor’s portfolio.



With that as background, we have scoured the SA market for some very exciting investment opportunities. We concede that these opportunities do come with some risks, whether it be debt, currency, regulation, liquidity or, in some cases, a combination of these factors, associated with them. Nevertheless, we believe that, at current valuation levels, the investor is more than compensated for such risks. So, put your hard hat on and prepare for some volatility although, at the end of the day, we are confident that a portfolio of these shares will reward investors handsomely.



MTN Group



If one were to draw up a list of countries where it is notoriously difficult to do business, and that also have extremely volatile regulatory and economic environments, the chances are that a large number of these nations will be among the 21 countries in which MTN operates. Initially, with major global mobile operators reluctant to enter these markets and regulations being fairly light, these countries held the appeal of attractive emerging market (EM) growth potential, with limited competition, for MTN. While this worked well in the beginning, over recent years MTN has appeared to stumble from one exogenous shock to the next – wars, extreme currency volatility, sanctions, exorbitant regulatory penalties and various lawsuits – but the company has weathered all these setbacks. MTN’s vulnerability to these exogenous events means that it is typically sold off, particularly aggressively during periods of risk aversion. This time around, the market sell-off was amplified by the collapse in the oil price, to which a number of MTN’s markets are vulnerable (especially Nigeria). With MTN’s share price falling below R40, the counter has now declined &gt;85% from its 2014 peak and it is currently trading at levels last seen in 2005.



In an industry where scale is critical, the significance of MTN being a top-two market share operator across all the markets in which it operates should not be underestimated. Where the telecommunications sector globally has largely been consigned by investors to the status of an ex-growth utility, MTN stands apart for several reasons. First, many of the Group’s markets still have further opportunities to increase penetration of mobile telecommunications and the potential to migrate those users to smart devices and drive data adoption. Second, while most developed market (DM) operators are confined to the provision of commoditised voice and data services, MTN is capitalising on opportunities to also add digital and mobile financial services.



Although MTN CEO, Rob Shuter has announced that he will be leaving the company at the end of his contract in one year’s time, he assembled a very competent management team during his tenure. Shuter has set the Group on a self-correction course. This includes the disposal of non-core assets, with proceeds being used to pay down debt (R14bn in sales were raised in the first year, with guidance of a further R25bn to be realised over the next few years) and paying particular attention to turning around some of the Group’s underperforming business units.



Since many of MTN’s new revenue streams do not require significant capital investment and are delivered through over-the-top platforms already in place, it has enabled the company to provide guidance of low double-digit revenue growth, margin expansion and relatively flat capital expenditure over the next 3-5 years. With the strong double-digit growth in free cash generation that this guidance implies, MTN is targeting annual dividend growth of 10%-20%.



Even at the bottom of the dividend guidance range, the prospective dividend yield is 15%, while the price as a multiple of expected earnings in 12 months’ time is 5x. No doubt, Brent Crude oil at below $30/bbl poses risk in the short term of foreign exchange availability and currency devaluation in Nigeria (MTN’s largest profit generator in FY19, accounting for c. 40% of group EBITDA). However, we are mindful of the oil industry saying, “the best cure for low oil prices, is low oil prices” and it is unlikely that the current situation will be sustained long term. At current levels, we believe there is now enough of a margin of safety in MTN’s share price to compensate for the risks it presents, with the potential for a strong recovery as current headwinds abate.



Investec



Over the past four decades, Stephen Koseff and Bernard Kantor created an institution. Built on the foundation of entrepreneurship and being agile and nimble to service its customers, the distinctive zebra logo became one of the most widely recognised symbols in SA financial markets.



In the early 2000s, Investec started to expand offshore with the UK being a key target market. Unfortunately, the UK’s highly competitive banking environment, ever more draconian and complex regulation and a global financial crisis (GFC) that hit just as Investec started to expand aggressively in the UK, made the experience far more lacklustre than the firm’s local successes. However, the company stayed the course, and, over time, Investec has built a strong UK presence.



Nevertheless, the UK remains a considerable drag on the Group’s profitability and ROE. Since the disastrous acquisition of Kensington in 2007 and the harsher regulatory environment post the 2008 GFC, Investec’s UK division has struggled to achieve a ROE greater than its cost of capital. This has resulted in Investec rightfully trading at a discount to its book value for significant periods since the GFC.



This discount to book value reached extremely low levels during the current sell-off, trading at close to 0.3x book. In addition, it coincides with some real positive changes taking root at Investec. The old guard has moved on and the new management team have taken decisive steps to improve the profitability of the bank.



Management unbundled the asset management division to make the structure less complex, committed to improving the cost-to-income ratio in the UK and promised that there were no sacrosanct segments of the business that will not be cut in the event of underperformance. We are still at the initial stages of the new regime and it will be interesting to see whether management can indeed improve the UK division’s ROE.



Although we acknowledge that Investec is not the highest-quality bank in the world and its earnings growth and ROE profile are far more volatile than its SA peers, we believe that the current share price provides an opportunity to enter at depressed multiples that more than sufficiently reflect the lower quality. And, the investor may yet benefit from an improvement in operating metrics as the new management team start their work.



Redefine



In recent years, many SA (and global) conservative investors squirrelled their savings away in property shares to earn an attractive, growing income. This bubble burst over the last few months and even the highest quality property companies have seen their value decimated. Selected YTD (to 25 March) declines among local property counters include Growthpoint (-45%), Redefine (-74%), Resilient (-46%), Nepi Rockcastle (-40%), Vukile (-63%), Attacq (-58%) and Hyprop (-60%). This follows already steep share price drops across the board in 2019.



The dire economic outlook for SA had already impacted Redefine’s share price hard when the novel coronavirus (COVID-19) hit and the whole property sector is now in crisis. These are unprecedented times and the world has changed in the last few weeks. Some tenants (especially in the retail sector) will earn little or no turnover for some time, and we have no doubt that they will want to renegotiate rentals with landlords. Some smaller tenants will go bankrupt. It is clear to us that the property sector will be reset after panic around the virus has subsided. Thus, the fate of many property companies is largely dependent on SA banks, who have very strong balance sheets and who, we believe, will be very co-operative in working with these companies to navigate the way through the current crisis. Although loan-to-value (LTV) ratio levels are all stated in the debt covenants for property companies, we think that the credit providers’ focus will turn from LTV ratios to interest cover, cash flow and sustainability. It is not in the interests of the banks to “pull the plug” on some of their biggest clients. We expect Redefine to work its way through this scenario together with the banks, with “reset” value emerging.



Management have acknowledged that they have no idea where rentals will settle, and they will largely depend on the health of the economy and the tenant. About 30% of retail turnover is from “safe” companies such as food retailers, cellphone companies and banks. Many office tenants will remain robust and industrial/logistics rentals will depend on tenant quality. So, it is not a disaster across the board, but months of hard negotiations will follow.



However, for investors, LTV ratios will remain a key metric and something which Redefine will have to address. At its last results presentation (FY19), Redefine had an LTV ratio of 43%. To highlight the spiral, if we assume the company had R100 of book value and R43 of debt – that 43% LTV is only just within its debt covenants. If the book value is written down by 25%, the LTV ratio goes up to 57%! Asset sales are usually a partial solution, but this looks increasingly unachievable. Withholding dividend payments becomes the next, and most likely, scenario. If a company can generate an 8% yield on book value (we are assuming no tax payable, which may be contentious), ploughing this back into debt repayments (as opposed to dividends), with a two-year dividend holiday, can reduce the LTV ratio from 57% to 41% – back into the covenant zone. We note that Redefine has already announced a delay in its interim dividend payment.



A big issue with withholding dividends is taxation. REIT (Real estate investment trust) legislation allows companies designated as such, to not pay tax and to distribute income to shareholders who receive the distribution as taxable income. If REITs do not distribute 75% of their income, then the current rules say they must pay tax on their income. We believe the property sector is in the process of negotiating with Treasury in an attempt to waive this rule – at least for a once-off time period.



We conclude that in a base-case scenario, the adjusted book value will be well below current book values, but higher than the share prices. We calculate that Redefine is fundamentally worth 50%-100% more than its current share price (unless Armageddon prevails!). But there is a high risk of shareholders not getting dividends for one, or even two, years. The share price is factoring in a far worse scenario than our base case. But investors should focus on the balance sheet and track closely the progress the firm makes in degearing.



There is a long road ahead, but we believe that, in the end, we will look back at this as a great opportunity to buy the share.



Northam Platinum



The platinum group metals (PGM) miners were the talking point of 2019. After being priced for bankruptcy in 2018, the price of the PGM basket recovered in 2019 resulting in the share prices of these miners rallying by 250% or more. The higher basket price helped these miners reduce their leverage with some of the mining companies going into a net cash position. It was a remarkable turnaround and highlighted just how cyclical the fortunes of these businesses are. Which begs the question, do you want to buy into such a cyclical industry in these uncertain times?



It is a fair question, and the answer very much depends on the risk tolerance of the investor. The reason why we are comfortable with a small position in Northam is due to the precarious demand-supply balance which the industry faced going into the COVID-19 crisis.



Prior to 2019, the threat of electric vehicles (EVs) caused the PGM basket price to remain below the breakeven price for mining companies and they battled to survive. Capital expenditure was cut across the board, with mining firms struggling to pay for maintenance capex, not to even mention expansionary capex.



Then, in 2019, the combination of a greater focus on carbon emission worldwide, the more enhanced testing after the VW scandal and the lack of R&amp;D in combustion engines over the preceding few years forced vehicle manufacturers to just add more and more PGMs in their respective catalytic converters as emission standards became more onerous. With the costs of PGMs &nbsp;a small fraction of the total vehicle production cost, they had the luxury to do this. Demand for these metals surged and the miners were not in a position to increase supply. This caused PGM prices to rally, with rhodium and palladium hitting all-time highs.



In our view, this situation will not change in the short- to medium-term, despite the COVID-19 outbreak and the subsequent decline in global vehicle sales. We expect demand to remain strong due to higher emission standards. Importantly, the threat of EVs, which are expected to be close to 50% of global vehicle sales by 2030, will prevent PGM miners from investing in new mines, thus keeping a constraint on the supply response.



Northam is one of the few PGM miners that will see strong volume growth over the next few years. Due to some tough decisions taken by management during the lean years, the company was able to shore up its balance sheet and it continued to invest in operations. As a result, we expect Northam’s annual production volumes to increase from c. 600k ounces this year to 1mn ounces over the next few years. Northam’s mines are also of a very high quality, operating at very low operating costs due to mechanisation. Trading at very attractive valuations and offering significant earnings (at spot PGM prices) and production growth, Northam is a high-quality operator in a very cyclical industry.



Alviva Holdings



Alviva Holdings is not an exciting company! But it is one of the Africa’s largest providers of information and communication technology (ICT) products and services. The Group has three business segments – ICT Distribution, which imports ICT hardware and software and sells it into sub-Saharan Africa via resellers, Services and Solutions, which provides system integration and ICT solution services, and Financial Services, which provides leasing finance to small-, medium- and micro-sized enterprises (SMMEs) for their ICT products.



The risks to this business are real. It is difficult to see Alviva continuing to operate in the same verticals and products as it is currently working, in five years’ time. This is due to the ever-changing industry in which it operates. For example, cloud storage and processing will, likely, fundamentally change the role ICT service providers play in the lives of their customers. To survive, ICT service providers will have to adapt their business models quickly and also ensure that they have a balance sheet strong enough to absorb any shocks.



We believe that Alviva has both these traits. It has a very experienced and conservative management team, which have navigated through some very turbulent times in the past and we maintain that management should be able to continue to do so in future. In addition, management have also been conserving cash. Over the past few years, they have adopted a very conservative dividend policy, paying out only 10% of earnings in dividends.



At our last engagement with management, they conceded that the operating environment is very tough at the moment, adding that they were very disappointed in the company’s performance but that it should improve in the second half. Management have guided that they will first look to retire around R400mn in preference shares, after which they will engage with shareholders regarding potential share buybacks. Admittedly, this was before the COVID-19 outbreak.



However, Alviva’s valuation is ridiculous – it is currently trading at a historic PE ratio of c. 2x and a normalised free cash flow yield of 50% (and we believe that we are being conservative here), so the risk-reward profile for investors is very much skewed to the upside. Liquidity is a concern and we highlight that investors should be patient if investing in this counter.

Our top share picks for the brave investor: Finding opportunities in times of adversity

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The richest man in South Africa has stepped in to offer a lifeline to small businesses in these difficult times. Nicky Oppenheimer – worth $7.5 billion dollars as we speak according to Forbes – has pledged a billion rand to fight COVID-19 and help out employees in SMME’s. It will transfer funds to employees through interest free loans and also plans to stimulate economic growth after the crisis. Nicky Oppenheimer joins CNBC Africa for more.

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SA launches green fund to drive investment into SMMEs

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FNB extends aid for battling SMEs in South Africa amid COVID-19, lockdown

Our top share picks for the brave investor: Finding opportunities in times of adversity

How SA’s small businesses can access the R1bn Oppenheimer fund

News Tips

Advertise With Us

SMMEs

Focus On: Private-public investment at Richards Bay Industrial Development Zone

Game Changers: The growth of culinary dining in Rwanda

Game Changers: Bag Innovation: The gateway to curbing unemployment in Rwanda

Game Changers: Youth: A catalyst for economic growth

Game Changers: Unlocking Rwanda’s agro-processing potential

Game Changers: The important role of SMEs in Rwanda’s economy

FNB: Why succession planning is pivotal for small businesses

This initiative is empowering informal retail traders across the Eastern & Southern Africa Region

COVID-19: What Eswatini is doing to support its businesses

COVID-19: What the stats say about the impact on SA’s SMMEs

Nine ways you can try to save your small business post COVID-19.

SMME grocery stores permitted to operate during South Africa’s COVID-19 lockdown

SA launches green fund to drive investment into SMMEs

South African COVID-19 Tourism Relief Fund open for applications

FNB extends aid for battling SMEs in South Africa amid COVID-19, lockdown

Our top share picks for the brave investor: Finding opportunities in times of adversity

How SA’s small businesses can access the R1bn Oppenheimer fund

News Tips

Advertise With Us

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