For its second round of script dividend, FAR Property disclosed that unitholders of 124,881,852 linked units, representing 27.89 percent of the linked units in issue, have elected to receive linked units (in lieu of cash) of 100 percent of the distribution (of dividend and interest).
Further, unitholders holding 128,430,515 linked units, representing 28.69 percent of linked unit in issue, elected to receive linked units (in lieu of cash) of 50 percent of the distribution (of dividend and interest). Against this background, 12,625,368 new linked units shall be issued.
This is the second time that the company has offered script dividend as it seeks to preserve cash for future ventures. For the year ending 30 June 2020, unitholders holding 336,067,891 linked units elected to receive linked units (in lieu of cash) of 100 percent of the distribution (of dividend and interest), representing 78.79 percent of the linked units in issue.
Script dividends are being implemented amidst debate that the company is overvalued (founder Ramachandran Ottapathu argues otherwise). To be fair, experts say valuations are subjective and investors decide based on their projections of the performance of a company. Nonetheless, the trading price of an overvalued stock cannot often be justified by its earnings outlook. Analysts often expect the share price to drop.
Against this background, Imara Capital analysts have maintained their posture about the stock, assigning a SELL and citing downside potential. Script dividends are perhaps laudable if the company is undervalued because when a counter is undervalued, shareholders will realise more when the actual value comes up. On the contrary, when a company is overvalued, it generally means shareholders realise less when the actual value kicks in.
In investing, the Greater Fool Theory states that in any market, there will always be a “greater fool” willing to pay a higher price for an already overvalued security. In other words, sellers will always be able to sell a security or asset for a higher price to a “bigger idiot” who will pay a price for a security or other asset. Greater fool investing is based on the notion that when the speculative bubble bursts, someone else will be stuck with an investment when people realise that the price associated with it is simply excessively high. Making sure that one is not the larger fool is the key to successful greater fool investing.
In 2015, Afinitas allotted about 94 million shares to fund managers and public through an IPO and private placement, raising about P94 million. The company listed at a share price of P1. Across the local asset fraternity, pension fund money was invested. By virtue of its size, funds of Botswana Public Officers Pension Fund (BPOPF) were also committed through fund managers invited by Afinitas at the time. Private placement results at the time showed that shareholding secured through private placement amounted to 42.63 percent.
The 2015 annual report released later after the listing indicated that African Alliance bought a chunk of the company’s shares on behalf of BPOPF. African Alliance held 60 000 000 shares or 28.04 percent of the company. BPOPF’s funds were also committed through Afena Capital (now known as Kgori Capital). The Afinitas annual report showed that by the end of 2015, Afena had acquired a 6.17 percent stake, equivalent to 13,200, 000 shares. In total, the annual report showed that 73.2 million shares were held on behalf of BPOPF.
BPOPF’s investment had grown by 1.6 million shares by the end of 2016, thanks to Afena Capital which had boosted its holding to 6.91 percent. The shareholding has been constant since then. BPOPF held 74.8 million shares through Allan Gray in the 2019 financial term. After BPOPF terminated Kgori and African Alliance, Allan Gray inherited the shares.
This publication reported that African Alliance said the investment was based on future economic value generated from a pipeline of identified investments and prospects as reported at the time. At Kgori Capital, the asset manager believed the investment had the potential to increase valuation if the company could successfully execute its long-term strategy. The firm said it thoroughly examined the pipeline of prospective investments, the potential for development, and the promoters’ track records for executing such agreements, as it did with other investment proposals.
Ethiopia Investments Limited (a regional investment company), Adventis Limited (a regional asset management firm), and an African-focused investment bank, were among the imminent pipeline opportunities at the time of the offering. Afinitas anticipated profit in London and Ethiopia despite the prevailing geo-politics then. The company hit a snag in the country and its conference business was impacted by COVID-19 restrictions. Against this background, Afinitas Group remained loss making, and there was no way of knowing when that would change. Liquidity remained minimal with the share price hovering at about 89 thebe a share.
When Afinitas opted to delist, the fair value of the cash offer, according to BDO Wealth which was designated as the corporate financial advisor, was US cents 1.49. (approximately 15-17 thebe). While about P73 million of pensioners’ funds were invested, Allan Gray – which held the BPOPF entire stake – realised between P11 million and P13 million from the shares. Allan Gray believed the company was worth much less than the delisting price that its client (BPOPF) received. It was worth P0 to be specific. After raising about P94 million from investors through listing on the Botswana Stock Exchange (BSE), Afinitas revealed that maximum cash payout to shareholders in the course of the astonishing delisting was about P15.5 million.
In 2017 investors endured loss of value when the Choppies share price collapsed amidst a cocktail of governance issues. According to the group’s 2017 annual report, about seven asset managers that managed pension funds were among the top 10 owners of Choppies. According to data from Imara Capital in 2018, Choppies’ share price had dropped by 74.38 percent year-to-date, the poorest performance of the year.
Choppies suffered the brunt of this depreciation one Friday in September 2018, losing P1.29 to trade at record lows of P0.40. It rapidly regained its footing, gaining P0.22, but not enough to reverse significant shareholder losses. The drop was caused by corporate governance challenges. To be precise, allegations were that financials were misrepresented and overstated.
In the course of the scourge, Choppies’ market capitalisation reduced to P808 million, down from P3.1 billion in January 2018 when it was trading at P2.42. Choppies share price has remained at 60 thebe even as profitability is improving. The value of institutional investors’ shares was nearly wiped out in its entirety. Institutional investors lost P1.03 a share in value in the aftermath. Listed shares of BPOPF and Debswana Pensions Fund were managed by most, if not all, institutional investors.
Allan Gray was the largest institutional stakeholder, according to Choppies’ 2017 annual report. Allan Gray owned 154 753 735 shares, or 11.87 percent of the company. The valuation of Allan Gray at Choppies had dropped from P374.5 million. Allan Gray’s stake was worth P95.9 million, based on then share price of P0.62.
According to Choppies annual report, African Alliance’s share proportion was valued at 10.25, equating to 133, 614, 947 share allotment. The asset manager’s stock value had declined by P240.5 million from P323.3 million. It was now worth P82,800,000.00. After Allan Gray, African Alliance was the second largest institutional investor. Allan Gray, African Alliance and BIFM all manage BPOPF’s listed equities. BIFM had lost value of P93 million. Calculations showed that BIFM’s value was down to P32.7 million from P154.3 million. BIFM owned 4.05 percent of Choppies, equating to 52 825 371 share allocation as at 2017.
Choppies’ stock was also held by Investec Asset Management, which owned 2.07 percent of the company. Investec’s value dropped to P16.7 million from P65.2 million. Investec has lost P48.5 million. STANLIB Asset Management owned 35 465 717 shares, or 2.72 percent of the company. These shares plummeted in value from P65.8 million to P21.9 million.