Disappointing results for private equity reflect the broader economic carnage of 2020
Private equity as an asset class is an investor favourite since risk is spread over many operating entities but when a global calamity hits like the Covid-19 crisis in 2020, not even this traditional safeguard is sufficient to offset the immediate impact from shrinking revenues.
Releasing its financial results on Monday 31 May 2021 for the period ended 28 February 2021, Namibia’s largest private equity investor, Stimilus Investments Ltd painted a bleak picture following two back to back years with little or zero portfolio growth. Total assets under management now stands at N$646 million, down from N$657 million a year ago.
Stimulus Chief Executive, Josephat Mwatotele, stated “The Stimulus team continues to apply its efforts to provide strategic guidance and to ensure that each portfolio company is optimally positioned, both strategically and operationally, to handle this challenging environment in the best possible manner to make them well placed to deliver accelerated results when the economy improves.
Portfolio valuations were also impacted by higher discount rates being applied by the valuators to make provision for underperforming revenues and cashflows. This resulted in the portfolio for the second year in a row showing basically no growth, after taking dividend payments into account.
Consequently, the value of assets under management shrunk another 1.7% following the 2.8% slump in calendar year 2019.
When last year’s hard lockdown ended, some companies in the Stimulus portfolio staged encouraging recoveries, but not sufficient to make up for the combined impact of a protracted recession followed by Covid-19 business disruptions. Stimulus described the short to medium term outlook as “remaining very challenging” which leads to low predictability of the trading environment and increased operational and financial risk.
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 as a result 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 preference share dividends decreased year on year by 36% to N$2.07 per preference share (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 continue reducing gearing on their balance sheets;
Regarding their current situation, Mwatotele said “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.”
Stimulus Investments Ltd holds equity in the Plastic Packaging Group, Namibia Media Holdings, Nashua Namibia, CYMOT, Polyoak Packaging, Neo Paints, Khomas Solar Saver and Walvis Bay Stevedoring.
Josephat Mwatotele, Chief Executive of Stimulus Investments Ltd.
