In the small and mid-cap sector on the JSE, financial services group Ecsponent remains one of the most contentiously debated shares.
In its previous life, the share was known as John Daniel Holdings which was positioning itself as a private equity player.
After renaming to Ecsponent, the company has been watched with curiosity due to its issuing of a variety of different preference share classes to raise and manage its capital. There is a very good write-up from 2016 by Moneyweb journalist Patrick Cairns over here (https://www.moneyweb.co.za/news/companies-and-deals/company-behind-preference-shares-offering-14-5/) where Patrick looks at the preference share offering the attractive (overly attractive?) yield of 14.5%.
Let’s take a look at the numbers relating to the core Ecsponent listing:
- Market capitalisation of R302m
- Price to earnings ratio of 4%
- No dividend yield at present – presumably because it is currently funding high-yielding preference shares
- A net asset value of 17.8c/share with the share trading at 28c/share
- 30-day average daily trading volume of 132 986 shares
- The share is illiquid so returns are volatile but the share is down 20% over the past year but up 40% year to date and has a 5-year return of 115%
- In February the group indicated it had raised R700m through Afreximbank in a 4-year, Rand denominated facility. This funding would be used to bolster its SME lending facilities
The company breaks its operations down into 3 core areas:
This comprises investment products including fixed income, retirement annuity, living annuity and preservation funds for investors in South Africa and Swaziland.
This comprises the lending of capital to small and medium-sized businesses who require capital.
These solutions are secured business credit and supply chain / tender financing and supply chain solutions for primarily black owned businesses.
The offering is explained in the below video:
This unit takes strategic equity stakes in businesses which Ecsponent believes offer:
- High gross profits
- High barriers to entry
- High intellectual property
- Investment opportunities beyond SA borders
Truth Digital Group:
Ecsponent holds a 49% of Truth Digital Group with the other 51% owned by entrepreneur Shaka Sisulu to “create the largest, diverse and dynamic black-owned digital marketing group in Africa with access to unique and influential markets. Its subsidiaries include Plum, iKGB, ROi Africa and Retroviral – all operating separately, offering specialist niche services offered to clients.”
Go Life International
Listed on the JSE, Go Life International is listed on the JSE and plays in the nutraceutical market. The company has had an inauspicious time since listing and currently trades on a price to earnings multiple of 40 times earnings.
Go Life has a market capitalisation of R450m.
Ecsponent holds 68.2m shares in Go Life which is listed on the JSE AltX as well as the Mauritian bourse. This translates into a R34m investment.
There is quite a lot of interest in the 12% stake that Ecsponent holds in Mybucks which is a Frankfurt listed “fintech” offering. Ecsponent believes that this asset allows it to have access to European markets and provides a hedge against the weakening Rand.
Mybucks currently has 1.5m active customers.
Below is a video interview with Mybucks CEO Dave van Niekerk conducted with Edison Advisory:
Other equity assets include:
▪▪40% of MHMK Capital, founded by George Manyere in 2013, which is a privately held Africa- focused private equity investment and advisory firm that manages and provides advice on investments across multiple sectors in its chosen markets in Sub-Saharan Africa.
▪▪34.89% of GetBucks Zimbabwe, which is listed on the Zimbabwean Stock Exchange and offers financial products to individuals and small- and medium-sized, enterprises as well as accepting deposits from customers.
▪▪19% of Capitis Equity, a fully empowered VCC in terms of Section 12J of the Income Tax Act. Following shareholder approval, the Group has invested R156 million in Capitis and will increase this investment to R400 million by 30 June 2019 to expand the Group’s ability to stimulate the growth of South Africa’s SME sector.
▪▪25% of Ecsponent Financial Services Zambia, which is registered as a deposit-taking financial institution under the GetBucks brand.
Small and mid-cap shares on the JSE remain illiquid and out of favour. Ecsponent has worked hard to craft a niche space in the SME lending market and its Mybucks stake looks interesting but attracting investor support continues to look like a tough ask in the current market.