[TOP STORY] Motus, Sasol and MultiChoice BEE shares suggest strong dividends

SIMON BROWN: I’m chatting now with Craig Gradidge, co-founder of Gradidge Mahura Investments. Craig, I appreciate the time today. You were tweeting – was it Friday, perhaps over the weekend? – about some of the BEE shares, the Motus, the Sasol, the MultiChoice, which potentially have really strong dividends coming out of them. Some were announced, some are perhaps thought to come.

Phuthuma Nathi declares a dividend of 2222,22 for the third year running. Not 2 bad considering that it’s been trading between 8000 and 15300 over that time. Definitely ex-growth. Its a matter of time for that divi to start reducing…

— Craig (@CraigGradidge) June 10, 2022

CRAIG GRADIDGE: Yes. Good morning, Simon, and good morning to your listeners. Phuthuma Nathi* announced their results last week, and they declared a dividend of R22 a share. It’s been pretty much the same dividend for the last four years, now of R22 a share. But when you factor in that the share was trading at R150 it works out to quite a decent dividend yield of over 14.6% from that one.

And then recently we also saw Ukhamba 2 (Motus’s B-BBEE-scheme) declare a dividend. Ukhamba 2 is invested in Motus, and there they declared a dividend of just under R1.46. At the time they were trading at about R80 a share, so roughly an 8% dividend yield.

The one unknown is Sasol. I suppose the expectation with Sasol is that Sasol will declare a dividend at the next set of results, and expectations are quite high for the previous, I think, interims where the market was expecting a dividend because of the fuel price. The SOLBE1 share, which is essentially a discounted Sasol share, gets the same dividend that a Sasol ordinary shareholder would get. The trick is that SOLBE1 is trading at a 60% discount to Sasol. Sasol is trading at R402 a share, so SOLBE1 trading at R160. [If] Sasol declares, say, a R16 dividend, for example, which would put it on roughly a 4% yield, that would translate to a 10% yield for the SOLBE1 shareholders. So there’s potential there.

SIMON BROWN: Potential – I didn’t realise that the full dividend flowed through. These are obviously BEE stocks. The SOLBE1 does trade on the JSE, and you can buy that through a stock broker. Are the other two traded on their own over-the-counter platforms?

CRAIG GRADIDGE: Yes, the other two trade on the Singular Systems Equity Express platform, so you could open an account there and you could trade in those shares. Ukhamba 2 we value at roughly R37/R36 a share – a bit of a moving target with the Motus share price all over the place. But that currently trades at roughly R20/R22 a share, so about a 40% discount. I would say fair value is a 30% discount to cater for liquidity and then for any kind of risk coming out of the funding arrangement.

So, as you can see, in SOLBE1 there’s no funding risk. It’s a pure discounted share, so there’s no funding involved. That typically long-term average is a 30% discount. It’s double that. So if it just moves back to that long-term discount it should trade at roughly R280 a share, which is about 70% higher than where it’s trading today.

SIMON BROWN: That’s the point. There are great discounts, either announced or in the case of Sasol potentially coming. But you can also value these things and you aren’t going to the weeds with them, but there’s a funding structure. There is some debt there as well. You take 30% off for liquidity and you get to a fair value for that BEE share.

In all these cases these fair values are well above where the shares are currently trading. I suppose that is, more than anything perhaps, back to that liquidity.

CRAIG GRADIDGE: Yes. Of the three only Ukhamba 2 has debt in it … the debt’s been settled in Phuthuma Nathi. SOLBE1 was a discounted share, so there was no debt. You paid the discounted price and that discount widened. Ukhamba 2 – there is still some debt in there. It’s roughly 38%/37% debt to equity, so quite a low level of debt relative to the value of the asset, and quite a cash-generative asset as well. So it shouldn’t be too much of an issue for them to settle the debt, or clear the debt within the next three or four years.

SIMON BROWN: We’ll leave it there. Craig Gradidge is co-founder at Gradidge Mahura Investments. Craig, I always appreciate the insights.

*Phuthuma Nathi owns 25% of MultiChoice South Africa