VISIO commends Alexforbes’ management team and Board for taking the bold decision to repurchase 29% of its issued shares for R2.5 billion from Prudential Financial.
Alexforbes has been a core long-term holding for VISIO. Over the past five years, the company has delivered a total shareholder return of 192% (24% per annum), more than half of which has been distributed as ordinary and special dividends.
VISIO has long supported Alexforbes’ approach to capital allocation and to returning excess capital to shareholders. We believe this buyback is a highly effective use of the company’s balance sheet at current valuations. Repurchasing shares at an attractive valuation is accretive to earnings per share and increases value for remaining shareholders.
We estimate that the 29% buyback could increase future earnings per share by well over 10%, reflecting the significantly reduced share count. Remaining shareholders should also benefit from dividends being distributed across a substantially smaller share base. Importantly, the buyback underscores management’s confidence in the business’s quality and long-term growth prospects.
“Repurchasing shares at an attractive valuation is accretive to earnings per share and increases value for remaining shareholders.”
That confidence is further reinforced by the fact that Alexforbes’ anchor shareholder, African Rainbow Capital (ARC), is separately acquiring Prudential’s remaining 5.7% stake. Following the cancellation of the repurchased shares, ARC is expected to hold approximately 78% of the company. More broadly, we believe this sends an important message to the CEOs and boards of many neglected and undervalued South African-listed companies.
Chart 1: The power of buybacks
Chart 2: Lower implied PE post the buyback
No one understands a business better than its management team and board. When balance sheets are strong, investment requirements have been appropriately funded, and shares trade materially below intrinsic value, boards should be prepared to act decisively. Repurchasing shares from shareholders who wish to exit at depressed valuations can be one of the most effective ways to allocate capital and create long-term value for committed shareholders.
Alexforbes remains a key holding across our various strategies.