Value in connections

In an increasingly unstable world, defence systems are big business and Africa offers growth opportunities. With an eye on new business, defence group Saab SA has brought JSE-listed Sekunjalo Investments Limited on board as a shareholder.

The empowerment company will be tasked with “increasing linkages” in SA and Africa and it will be hoping that the deal will boost investment in its shares.

It is currently trading well below net asset value at 28c/share, and with a market cap of R132m this is one empowerment company that falls under the radar of most financial analysts.

Sekunjalo may be hoping that strategic deals like this will change that.

It has acquired a 5% economic stake in Saab SA, with 25% voting rights. It can increase its economic interest to a maximum of 25%, depending on the performance of Saab SA over the next five years .

Saab SA owns 70% of Saab Grintek Technologies and 75% of Saab Grintek Defence. The group sells command and control solutions, tactical communication systems and products, aerospace surveillance and sensor systems, and a range of civil security applications.

Turnover figures are not disclosed by country, but the group’s annual report says Saab AB earned R3,35bn from sales in Africa in its latest financial year. (Saab AB is unrelated to the car maker.)

After the Swedish department of defence, the SA government is Saab AB’s biggest customer. This may be one of the reasons that Saab is bringing Sekunjalo on board for what Sekunjalo CEO Khalid Abdulla calls a “nominal” sum.

As with Sekunjalo’s investment in telecoms company BT last year, financial details of the deal were not disclosed.

Sekunjalo’s net asset value will increase by 10%, from 81c/share to just under 86c , and earnings will increase from 0,23c/share to 4,58c as a result of this deal, says Abdulla. Dividends will be earned from the first year.

Financial Mail – Sasha Planting – Thursday 10 June 2010