AYO was a long-term investment set to change the landscape in the ICT sector – Dan Matjila


CAPE TOWN – Erstwhile chief executive of the Public Investment Corporation (PIC), Dr Dan Matjila, on Monday described the asset manager’s investment into AYO Technology Solutions as a long-term investment that would change the landscape in the information and communication technology (ICT) sector.

Matjila was testifying before the Commission of Inquiry into alleged impropriety at the PIC, which resumed after the hearing was suspended due to, among other matters, protests in Pretoria where the commission is based.

Matjila emphasised to the commission, led by retired Judge Lex Mpati, that Africa’s largest asset manager’s R4.3bn investment in AYO was not lost and was earning interest. He said the impression that had been created in that the PIC had lost money in this investment was off the mark.

He said that even the decline in the listed company’s share price was not a reflection of its value. “That is why I am saying that money is there, it’s a matter of how you apply it going forward, it’s not lost. The share price that you see of R8 a share does not reflect the value that sits within the company. It reflects the noise, the hype and all the negative reports around AYO, as opposed to the intrinsic value that sits within the company,” said Matjila.

The former CEO told the commission that the PIC’s 29 percent stake in AYO was very handy because it gave the asset manager a fair amount of control in the running of the tech firm, allowing it to put in place new governance processes, in order to be able to protect its investment and spend the money efficiently.

This is an investment holding, if it was a different investment, where you literally get into buying an asset at that point it’s a different ball game … there you commit and money is gone,” he said. “But where you have control, and you even put conditions to say that if you buy more than 10 percent of the market cap, you must consult with shareholders … that then means shareholders are in charge of how you build that portfolio.”

Matjila emphasised that what was key, was that money was not disappearing in this investment as the shareholders were still in control of how it should be spent.

The commission raised the issue of the PIC’s move to recover the money from AYO, which Matjila dismissed as a suboptimal approach. “Unless the law has been broken somewhere and the JSE has not done its work in approving this PLS on the basis of which this investment was made … in the unwinding of that, I’m sure they are doing their own investigations around the PLS.”

The PIC invested R4.3 billion for a 29 percent stake in AYO at R43 per share, a value that was arrived at by the PIC’s valuation processes.

The PIC’s portfolio manager of non-consumer industrials and listed equities, Sunil Varghese, told the commission earlier this year that the enterprise value-to-earnings before interest, tax, depreciation and amortisation (EV/Ebitda) valuation method put AYO’s actual value as high as R47 a share, at the time of the company’s initial public offering.

Varghese said EV/Ebitda was a popular valuation multiple used in the finance industry to measure the value of a company. He said it was the most widely used valuation multiple based on enterprise value and often used in conjunction with, or, as an alternative to the price-to-earnings (P/E) ratio, to determine the fair market value of a company.

Varghese said the P/E, which was assistant portfolio manager Victor Seanie’s preferred approach, gave a base case value of R43 a share, which was derived from earnings per share of R2.68 a share multiplied by 16 x P/E.

This story first appeared in the Business Report Online