Stephen Cranston

Vunani is better placed than anyone else to become a black-owned diversified financial services business. It was badly hit by the decline in the JSE, particularly the small-cap sector, but a rights issue will allow it to pay off R314m of debt.

CEO

“We have been read incorrectly as a BEE holding company,” says Dube, “but our aim is to be seen as an operating financial services company.”

He disagrees with suggestions that, like Mvelaphanda Group and possibly Brimstone, Vunani should unlock value by breaking up the business.

A glance at its annual report will reveal that the company has wide- ranging investments, primarily in Alt-X companies.

It has some attractive unlisted interests. For example, it is a major shareholder in Gidani, the operator of the national lottery.

However, the AltX slide meant that Vunani took a hit on its investments of R77,4m — far more than the R22,5m profit it made on its operations.

The company grew fast in 2005 and 2006 and Dube says that by 2007 it was becoming crucial to raise equity capital.

It listed in November 2007. Dube’s big regret is that it has to find more funds, after it obtained R175m of additional capital at the time of the listing at 100c. It has now been forced to raise cash through a rights issue at 10c/share (when the share has been trading at 20c).

Dube says it really has had no choice but to raise equity for the group to survive. “There was significant doubt in the company’s ability to continue as a going concern.”

Dube says that after the rights issue Vunani will still be 51% black owned.

This is important if Vunani is to remain a serious player in the BEE stockbroking and investment banking area. Dube has no doubt that there needs to be a well-capitalised black-owned investment bank.

“I saw what happened in the 1990s when Anglo American sold Johnnic. Because none of the parties had capital, they could not negotiate the price down, which in fact kept going up because the financiers took fatter margins.”

Vunani’s Investment Banking division made a loss of R9,5m. Dube says it is difficult to cut back on the fixed cost in the business without threatening its intellectual capital.

The highest growth has been in asset management, in which operating profit increased from R400000 to R4,8m.

The jewel of the Vunani stable is

There is also an asset consulting business, Vunani Portfolio Solutions, to advise pension funds on their investment strategy (25% management owned).

The best-established business within Vunani is the property division. It acquired the nonretail property portfolio from Hyprop now held in the Vunani Property Trust and it carries out its own property developments.

“We focus on prime office blocks. We don’t have golf estates with 50 properties and just three buyers.” The division maintained earnings at R27m and seems likely to be the core of Vunani for the foreseeable future — certainly until a bull run revives the investment banking and asset management sectors.

Dube does not have much competition for his vision of creating a black RMB or Investec. AMB Capital is the closest.

Some value has been destroyed chasing the dream, but Dube’s financiers and shareholders have given him a second chance. If he doesn’t rise to the challenge a break-up could be inevitable.

Source: Financial Mail