One of Namibia’s largest private equity funds, Stimulus Investments Limited, yesterday reported that no portfolio growth was experienced in terms of independent valuations, which they said was reflective of the tough economic environment and the uncertainties about financial forecasting. In fact, for the period that ended on 28 February 2021, Stimulus’ assets under management reduced by -1.7% for the year under review, compared to a 2020 reduction of 2.8%.
The market value of SIL’s preference shares represents an internal rate of return of 7.21% for the preference shareholders as of 29 February 2021, compared to 7.48% in 2020.
Stimulus currently holds eight investments, namely in Plastic Packaging Group, Namibia Media Holdings, Nashua Namibia, CYMOT, Polyoak Packaging, Neo Paints, Khomas Solar Saver and Walvis Bay Stevedoring. Total assets under management were N$646 million as of 28 February 2021 through which the investee companies employed more than 1 766 permanent workers.
A media statement yesterday noted that Stimulus’ preference share dividends decreased year-on-year by 36% to N$2.07 (2020: N$3.24), which represent a dividend yield of 1.6% (2020: 2.5%). The reduction in dividends resulted from investee companies retaining cash to further reduce gearing on their balance sheets.
Approximately 5.2% (2020: 7.6%) of Stimulus’ investment portfolio is made up of cash reserves available for future investments, which makes the private equity fund fully invested.
“The Stimulus portfolio companies have experienced an encouraging recovery in trading results following the negative trade impact of the Covid-19 lockdown period. The Namibian recession has however deepened even further with the short- to medium-term outlooks remaining very challenging. This leads to low predictability of the trading environment and heightened risk of doing business,” read a statement from Stimulus.
Meanwhile, Stimulus CEO, Josephat Mwatotele, explained that his team continues to apply its efforts to provide strategic guidance and to ensure each portfolio company is optimally positioned, both strategically and operationally, to handle the challenging environment in the best possible manner to deliver accelerated results when the economy improves.
“Our top priorities for the future remain the health and safety of our investee companies’ employees, protecting their livelihoods, safeguarding liquidity and strategically positioning our investee companies for the new reality. We remain positive about the ability for these companies to flourish in a dynamic and changing environment given that they are well-capitalised, streamlined in terms of operations and well-managed by competent and experienced management teams,” said Mwatotele.
Furthermore, domestic sectors hardest hit by the global pandemic were tourism, logistics, manufacturing, mining, construction, financial and insurance, retail, and wholesale trade, to name a few. This means that Namibian real GDP contracted by 8% in the 2020 calendar year. Supply chains globally remain disrupted with businesses struggling to procure their product lines while the low level of predictability and uncertainties with regards to the continued impact of knock-on effects of the yet to be controlled pandemic continues to negatively impact companies’ deployment of capital. In this regard, Mwatotele stressed that the Namibian economy remains in a vulnerable position and the outlook in the short- to medium term remains very challenging.
Despite these challenges, the Stimulus investee companies achieved encouraging results once trade commenced following the Covid-19 lock-down period. In some instances, investee companies even managed to make up for the shortfalls caused by the lock-down. These results, Mwatotele exclaimed, are testimony to the hard work and resilience of the management teams of these companies in the face of adversity.
The Stimulus CEO added that in terms of the independent valuations of the investee companies, the better-than-expected results of these companies were however countered by the fact that valuators applied higher discounting rates to projected future cash-flows due to increased forecasting risk as well as a generally riskier operating environment for all business. Said Mwatotele: “This has resulted in the portfolio for the second year in a row showing basically no growth, after taking dividend payments into account”.
The Stimulus portfolio delivered dividend payments totalling N$15.1 million (2020: N$16.3 million) for the year under review, which decreased by 7.6% from 2020. This was because of reduced dividend receipts from investee companies, which continued to retain capital to reduce gearing and to hedge against operating uncertainty. Stimulus deployed additional capital of N$17 million (2020: N$7.5 million) within its portfolio as part of its approach to assist an investee company to grow its business and support its long-term strategy.
Stimulus has grown from being the first Namibian private equity fund to one of the largest due to the combination of patient capital and an experienced, long-standing management team. Mwatotele concluded that Stimulus remains committed to achieving the best long-term outcomes for its stakeholders.