I have read quite a lot of commentary today about how Ellerines is an albatross around the neck of Abil and how it is likely to continue to hurt them.
Don't get me wrong - in hindsight they have overpaid for the asset but just look at this for a moment and let's try and work this out.
As things stand revenue breaks down like this
- African Bank - R7.4bn
- Ellerines - R6.9bn
That revenue line in these results is the key. A business that can generate R15bn in revenue - primarily cash can do whatever the hell it likes.
Have a look at the capital raisings that the bank has undertaken this year. I think it raised about R800m over the last 12-months.
In credit markets which have been squeezed that is not a bad going. In a business of this nature, if you can generate cash the funding (and cost of funding) will ultimately play ball.
Another key aspect for me is that the Ellerines they bought and the Ellerines they are trying to build are two very different animals. The group has admitted they have made mistakes and they've done things about it.
Instead of standing around and letting it fail they've attacked the problem and they are trying to address some of the challenges they are facing. If you have seen some of the plans around simplying the whole retail offering you will know that there is a strategy they are trying to execute.
The other point I would like to try and get across is that I don't believe Abil are trying to be furniture salesmen competing with the mainstream retailers. My sense is they would like a functional and workmanlike retail offering but stick to the business of lending - and managing the risk of lending
Conclusion
Maybe the ordinary shares are a little expensive at current levels (if you have a short-term investment outlook) but I don't think you can go too far wrong adding a few of the Abil preference shares to your portfolio.
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