Creating value while doing good

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After more than 12 months, aside from challenging businesses to operate under a new normal, the Covid 19 virus has also highlighted the importance of intangible assets in a business. These are things like brand value and goodwill. 

According to J.G Manoukia, Ocean Tomo (a US-based firm), reported that intangible assets have represented up to 90% of the S&P 500 market value in 2020, compared to a 17% in 1975, whereas tangible assets during the periods represented only 10% and 83%, respectively. In South Africa, as the virus continues to cause disruptions in the economy, according to the investment firm ATA Capital, it has highlighted the need for social issues including inequality, diversity & inclusion, and transformation, to be addressed.

While the trend in ESG investing (Environmental, Social, and Governance investing) has gained momentum over the years, the global pandemic became an accelerating factor, bringing it into the mainstream.

Let's have a look at some of the South African listed companies that are making progress with deals and decisions that will impact society and have the potential to create better value for investors.

City Lodge Hotels Limited (CLH)

After being affected by the global pandemic, which put a halt on traveling, negatively affecting tourism stocks globally, City Lodge, reached out to shareholders through a rights issue valued at R1.2 billion to remove the BEE funding burden. According to the group, the rights issue was to "repay corporate debt; provide for its obligation under the BEE funding arrangements; allow the company sufficient working capital to fund its cash flow shortfall as a result of the impact of the Covid-19 pandemic and the lockdown, and create debt capacity and a flexible capital structure to position the company for future growth."

Previous transaction

The bailout came after City lodge completed a BEE deal in 2008 with three entities for a 15% stake in the group, valued at, at least R485 million. Commenting on the deal during the period, the group added that "Contributing to the education of black students in the tourism and hospitality sector is an investment in the future of South Africa while empowering and retaining our own black staff is also a key consideration for staff motivation and skills retention within our group."

Outlook:

Moving into 2022, after a challenging year due to the global pandemic, the group further added in terms of recovery, "The success of the vaccination program is integral to the recovery of the hospitality industry. There is pent-up demand as we emerge from the 18-month confinement within our homes, to begin to explore, socialize and experience life."

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Ellies Holdings Limited (ELI)

Trading at 48 cents per share as of writing, Ellies is one of South Africa's electronics industry veterans.

The company has seen its share price increase by over 370% within a short period after the Ellies board announced that the company had completed a BEE transaction with Imvula Education Empowerment Fund Trust, valued at R18 million. With the transaction taking up an estimated 23% stake in the company, the CEO, Shaun Prithavirajh, added that this will "bolster" the company's prospects and strengthen its market position.

This transaction puts the company in a position to uplift and empower youth and students of the areas in which the Imvula operates - while at the same time improving "operations and/or financial position in order to endeavor to increase returns for the shareholders of the company." Ellies said

According to the company, the BEE deal is aligned with Imvula's values on impact investing, creating value and impact "with purpose, and that fits with environmental, social, and governance goals. This fits with things like solar and renewable energy and other areas they have a strong base for the future in."

Following the transaction, the company also mentioned that it would distribute new products through an agreement with StreamViews, a Nokia product designer, manufacturer, and developer for Europe, the Middle East, and Africa.

Through the above-mentioned deal that came into effect as of 11 October 2021, the company will distribute products to South Africa and other African countries with an expansion plan of expanding in other Southern African developing countries.

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Gold Fields Limited (GFI)

According to Kitco's second-quarter report, Gold Fields is considered the 5th largest gold mining firm.
Releasing its ESG report, the company has shown commitment to strengthening its ESG Investments while "maximizing potential from current assets through people and innovation", together with growing the value and quality of its portfolio.

Making progress in its 2030 ESG targets, Gold Fields achieved a 10% absolute admission and 5% net emission in 2020; compared to the 2030 bigger picture of 50% and 30%, respectively. The group also has set a goal to reach net-zero by 2050. In terms of diversity, the company achieved a 21% women representation during 2020, with 30% being the goal for 2030. Other goals include water stewardship, whereby the company reduces the usage of freshwater while increasing the use of recycled/reused water and the safety and security of employees.

Commenting on the progress, Gold Fields CEO Chris Griffith said:

"In finalizing these targets, we ensured that they were informed by detailed programs, strategies, and budgets. These targets are ambitious, but we realize that without this commitment to creating enduring value beyond mining and positively impacting our local stakeholders we cannot guarantee the long-term sustainability of our assets where we operate."

The investment in decarbonization projects is expected to cost the company an estimated $1.2 billion by 2030, which will be funded by the company and "expected to be NPV positive", Griffiths said.

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Roundup

One thing to keep in mind as an investor is that while these companies are doing good through strategies that may be considered or include ESG focused investments, it may at times come with costs, either financial or via a share dilution, once successfully implemented.  

Considered non-tangible assets, addressing social issues forms part of the building block in a company's brand and position in the market, further enabling a company to grow and expand its business operations.

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Sources – EasyResearch, City Lodge Hotels Limited, Gold Fields Limited, Gold Fields Limited, WhyAfrica

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