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To SZK or Not to SZK? That has been the question!


SAB Zenzele Kabili (SZK)

Has the “Meme Craze” finally hit our beloved shores with the SAB Zenzele Kabili (SZK) listing? Or is this just an opportunity of a lifetime not to be missed?

Let us take a closer look at recent developments:

A Short Back Story

In case you missed it, SAB Zenzele Kabili is the follow up of the successful and largest B-BBEE scheme in the history of South Africa, SAB Zenzele (initial scheme). This empowerment scheme started in 2010 and reached a total maturation value of around R9.7 billion. Some financial articles are already doing the math, stating that for every R100 invested in SAB Zenzele (initial scheme), it would have returned a total of R77 518 since 2010. These statements might be driving the current hype as the expectation by many is that the new SAB Zenzele Kabili scheme (current scheme) will do better over the long run.

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The SAB Zenzele Kabili scheme has made a lot of noise since its listing on the 28th of May 2021 at R40 per share which, quickly gained “Meme Stock” like interest driving prices significantly higher. The share price quickly crossed the R200 per share mark but has firmly settled at R180 a share.

SAB Zenzele Kabili Holdings Limited (SZK) metrics:

  • Current Share Price: R180.00.
  • Shares in issue: 40.55 million.
  • Number of Anheuser-Busch InBev SA/NV shares held by SZK: 5 105 685 shares
  • ANH share price at the time of writing: R1093.87 per share.
  • Hence, the value of ANH Shares held by SZK: R5.406 billion.
  • AB InBev Dividend yield: 0.81%
  • Vendor funding (Preference share debt): R2.973 billion.
  • Coupon payable by SZK on Preference share debts: 70% of Prime Rate

INVSTRs should note that it is anticipated that the preference share debt (including the coupon) will be settled via the (ANH) shares dividend payments received by SZK. Some investors have also speculated that once the debt has been settled a single SZK share will be worth one ANH share. By looking at the current ANH shares owned by SZK and the outstanding shares in issue, one can see that it is not on a one-to-one basis like other empowerment schemes once the debt has been settled.

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The “Hype” around SAB Zenzele Kabili (SZK) brought valuations into question not only by the Fin Twit elite but also by SAB itself in its latest JSE SENS announcement.

When using a simple asset-based valuation model and the above metrics for SZK we can come to the following conclusion of what the current value per SZK share could be.

The calculation looks like this in simple terms:

(Value of ANH Shares held by SZK) – (Preference share debt) / SZK shares in issue = Value per SZK share.

(R5.406 billion – R2.973 billion) / 40.55 million SZK shares = a net asset value of R60 per SZK share.

So, by looking at the valuation result compared to where SAB Zenzele Kabili is currently trading (R180 a share), the empowerment scheme shares are trading 3x above their indicative valuation.

Value investors could also go a step further and implement risk measures (Liquidity/ Risk discount) of 20% to derive a fair or intrinsic value per SZK share. Then you would look at around  R48 per share indicative value.

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Informed decisions

Listen fellow, INVSTRs, the Beef enjoys a local brewski as much as the next Saffa but within reason at a fair value. Expectations might be misplaced as the SAB Zanzele (initial scheme) structure was very different to the new SAB Zenzele Kabili scheme which, means returns could also differ substantially.

The current sentiment looking at investor behaviour and short-term valuations is that the SAB Zenzele Kabili scheme is overvalued for new INVSTRs. Short term investor behaviour has the remnants of the “Meme Stock” craze but the actual market mechanics and driving factors are worlds apart.

It might suit INVSTRs, who have not invested to wait for better valuations while the privileged few who are invested (from the initial scheme), should stick it out for the long haul.

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and want to learn more about the SAB Zenzele Kabili scheme?

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Read: SAB Zenzele Kabili: Where is the value?

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Sources:EasyResearch, JSE SENS, South African Breweries (SAB), Craig Gradidge, Moneyweb.

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Barry is a market analyst with GT247, with a wealth of experience in the investment markets. Now in his tenth year in the markets, Barry "The Beef" Dumas brings a combination of technical analysis and fundamental insights to the table

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