by Sithembile Bopela, Chantal Marx
Altvest Capital (ALV) is an investment holding company that was incorporated in 2021 with the aim of providing small to medium enterprises (SMEs) with access to public funds through regulated, low-cost platforms. The company seeks to connect retail investors to private equity investment opportunities (in the past only reserved for high-net-worth individuals) and thereby provide entities seeking funding with alternative sources of capital. Altvest has a market capitalisation of R60 million where it is currently listed and has raised ~R321 million of capital associated with its three investee companies since 2022.
The offer to the market comprises of Altvest Capital (ALV), the ordinary share, thereby gaining exposure to the platform and indirect exposure to the underlying investee companies and/or acquiring direct exposure to the underlying assets by investing in the listed preference shares. The underlying investee companies are Umganu Lodge (ALVA), Bambanani Family Group (ALVB), and Altvest Capital Opportunities Fund or ACOF (ALVC).
The SME environment
In South Africa SMEs face several economic and financial challenges including high borrowing costs and limited access to funding, which in turn limits their ability to expand or invest in new ventures. Especially for start-ups, high operating costs relative to their cash flow generation as well as complex regulations can hinder business growth. These companies are key drivers of GDP growth but face limited market reach due to their underlying growth constraints, with competition from larger businesses with access to traditional funding and other tools making it difficult to gain market share. The high costs associated with IPOs limit SME's from gaining access to public markets.
To meet this need, Altvest seeks to "crowdfund" these SME's by enabling fractionalised ownership of unlisted assets to a combination of retail and institutional investors. With a flat 1% charge to retail investors, Alvest's opportunity is considerably cheaper than the typical private equity fee model with its high costs and minimum buy-ins, which often prevent participation.
Rationale for the Johannesburg Stock Exchange (JSE) listing
Altvest and its investee companies are currently listed on the CTSE and the A2X. The primary rationale for the JSE listings is to access a larger and more liquid market, and have access to a bigger broker network and in turn, a wider and deeper retail market. The listings will further enhance transparency, financial reporting, and corporate governance of Altvest and the investee companies, in compliance with the JSE's listing requirements. It will also allow Altvest to increase its ability to make acquisitions and bring new listings to market.
Altvest and its investee companies are currently listed on the CTSE and the A2X. The primary rationale for the JSE listings is to access a larger and more liquid market, and have access to a bigger broker network and in turn, a wider and deeper retail market. The listings will further enhance transparency, financial reporting, and corporate governance of Altvest and the investee companies, in compliance with the JSE's listing requirements. It will also allow Altvest to increase its ability to make acquisitions and bring new listings to market.
Altvest and the investee companies will delist from the CTSE prior to the JSE listings but will retain secondary listings on the A2X.
Altvest : Financial performance and key forecasts
For FY24, the group posted operating revenue of R973 261, down 51% y/y from R1.96 million in FY23. This reflects the lack of income from bookbuild fees as the company only completed one equity listing (Altvest Capital Opportunities Fund [ACOF]) without any third-party assistance, compared to two listings in the base period. Management expects, given its investment pipeline and steps taken to widen its brokerage network and solve liquidity issues, to resume listings and deliver on its target of six to eight listings per year. This should drive capital raising and advisory fee income and in turn, support a rebound in revenue growth while expanding the range of sectors within the Altvest stable.
The lost revenue in FY24 was somewhat offset by income gained from asset management fees of R666 668, which Altvest received as fund manager of ACOF. Management forecasts an additional ~R400 million per annum (p.a.) in assets under management (AUM) from FY26, as ACOF acquires more mandates to continue its lending operations, which will translate to higher fee income going forward. Included in the forecast assumptions is 40% of fees levied to borrowers on loan disbursements to facilitate loan origination, evaluation, monitoring, and the cost of external services (with the rest accruing to ACOF).
Risks
Valuation & SPM View
Altvest Capital's ordinary shares are being offered at an 8% discount to net asset value (NAV). This seems rich relative to other private equity peers, however, given the alternative nature of its business and ambitious growth projections - a valuation closer to NAV can be justified. Umganu's subscription price is estimated to be 5% below the current NAV per share; Bambanani's at 9% above the current (conservatively estimated) NAV; and ACOF at 7% above the current NAV.
Altvest and its associated vehicles provide retail investors with access to an alternative asset class that is listed - being private equity with a specific focus on SME's. This will provide a diversification benefit - particularly when combined with traditional equity and bond investments. Alternative investments do, however, carry significant risk, including potential for loss of capital, and as such may only be suitable for investors with a long-term investment horizon with a high-risk tolerance.
How to apply:
FNB Stockbroking and Portfolio Management will collate an application of indications of interest in ALV and the preference share vehicles. The issuer will consider these applications as part of the IPO process and trade on listing date at the issue price less transaction costs. Please email your interest to shares@fnb.co.za by 4 October 2024, 12:00.
Please ensure you have funds available in your account by the listing date, being 14 October 2024, or your application will be cancelled.
