The Stimulus investments portfolio delivered dividend payments to its preference shareholders totalling N$84.5 million (2022: N$9.6 million) for the financial year ended 28 February 2023, which increased by 777% from 2022, the company’s financial results show.
This, in combination with the latest portfolio valuations, represents a total return to preference shareholders of 13.6% (2022: 1.9%) for the year, results further show.
“The substantial increase in dividends is largely due to the proceeds from the investment disposals of N$75.2 million,” the company highlighted.
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.
Stimulus continues to hold seven investments, being the Plastic Packaging Group, Namibia Media Holdings Group, Cymot, Polyoak Packaging Namibia, Neo Paints Group, Khomas Solar Saver and Walvis Bay Stevedoring. Total assets under management amounted to N$651.1 million on 28 February 2023 and the investee companies employ 1,264 permanent employees and 766 temporary employees.
The 2023 year marked Stimulus’ first major divestments, in the form of the disposal of its 26% interest in Nashua Namibia as well as the disposal of 17.6% of its interest in Khomas Solar Saver, whereafter Stimulus and Sedgeley Solar Management now each owns 50% of Khomas Solar Saver. These two divestments were, in the aggregate, done at a premium of 47% to the independent valuations of these entities as contained in the 2022 Annual Financial Statements.
Stimulus’ dividend income from investee companies reduced by 11.2% to N$17.4 million (2022: N$19.6 million) mainly due to the retention of capital within two key portfolio companies for expansionary purposes. The reduction in dividend income from investments is offset by an increase in the fair value of the investment portfolio.
Executive team member, Pieter Laubscher explained: “We are pleased to note that the portfolio companies are starting to benefit from their operational efficiencies in combination with the pick-up that we experienced in certain industries. We remain positive regarding the Namibian economy’s prospects in the medium term, also taking into account Namibia’s positioning around green hydrogen as well as the offshore oil reserves, which are starting to look like a very real prospect. Last year we mentioned that the Stimulus Board would carefully start evaluating certain exit opportunities. In this regard we are pleased to report the two divestments made. We also believe that the terms at which these disposals were made underpin and inform the value of the remaining portfolio.”
The company also said that the portfolio companies experienced a meaningful pick-up in business activity which filtered through to revenue and profit growth.
“Forecasting predictability has also improved. The construction sector however remained in recession which currently limits revenue growth in Neo Paints, which supplies this industry. Media also remains a challenging industry with companies in this sector, such as NMH, being forced to rapidly adapt to an ever-changing technological environment.”
Stimulus recorded normalised portfolio growth of 9%, in terms of the independent valuations, weighed upon by another general increase in discount rates due to the rising interest rate and inflationary environment. The portfolio’s weighted average Discount Rate currently applied by the independent valuators is 22%.
Following the investment disposals and consequent special preference share dividend distribution, as well as the most recent independent valuations of the remaining investments, Stimulus’ assets under management increased by 0.4% for the year under review (2022: 0.5%).
The value ascribable to each preference share, cum dividend, was N$139.91 as at 28 February 2023 (2022: N$139.40).
Approximately 5.3% (2022: 5.2%) of Stimulus’ investment portfolio is made up of cash reserves available for application within the portfolio should circumstances so require. Stimulus is otherwise fully invested.
“According to the Namibian Statistics Agency the Namibian recession was officially over in 2022 with recorded real growth of 2.4%. This however still means that the economy shrunk in real terms by 1.05% per annum since 2016. The green hydrogen project driven by the Ministry of Finance as well as the discovery of substantial offshore light oil reserves may however have a substantial positive impact on the Namibian economy in the future should it be successfully implemented. The Stimulus portfolio companies are all leaders within their respective industries and are well-positioned to benefit from any improvement in economic activity and climate,” the company said.