Positive spin-off for African Dawn

This is according to African Dawn CEO Marius van Tonder, who confirmed to Fin24.com that the company expects to move from the Alternative Exchange (AltX) to the JSE's main baord within a year.

African Dawn comprises two core revenue streams: structured business finance and small-scale home improvement and personal finance loans.

Moving to the main board is likely to boost the company operationally: the lifeblood of the business is its ability to secure funding for its secured and consumer lending operations.

Cheaper funding means it can extract a bigger portion of the market and obtain funding on better terms.

"Since we announced that we were looking at a main board listing we have had increased interest from the industry in terms of prospective funding sources" said van Tonder.

Van Tonder said that the company estimates that it will grow earnings 100% per annum for the next five years. To maintain these growth rates the company will need access to sources of capital.

From a shareholders' perspective, African Dawn has been one of the top performers on the AltX. However, many investment funds have mandates that prohibit them from investing in non-JSE listed companies.

If African Dawn were to move onto the JSE main board, this could result in a re-rating for the business and boost the share price.

Initially listed in August 2003 at a price of 5c per share, the company has seen its share surge to a high of 579c before retreating in line with other equity markets. Currently the share is trading at 517c.

Clear strategy

"We're sticking to what we are good at and to be honest retail scares us" said van Tonder when asked whether or not they would consider expanding their operations to include retail credit books.

Listed micro-lender African Bank recently purchased furniture retailer Ellerines and the company has identified this business as being a big potential growth market for their business.

African Dawn however believes that this is not an area they want to become involved in and they would prefer to stick to its two core revenue streams.

Money down

African Dawn directors also have not been shy to put their money on the table either.

A mix of ordinary share and single-stock future (SSF) purchases, particularly by van Tonder, indicates that they believe the company is on the right track.

Listed company directors have sometimes been accused of worrying too much about their company share price rather than running a business.

When asked whether too much SSF exposure might take management's eye off the ball from an operational perspective, van Tonder agreed that it might if the price started heading down.

He said African Dawn does not have a share incentive scheme in place (although one was being developed) and the SSF exposure was one way in which directors could benefit from the ongoing success of the business.

Share incentive schemes are typically offered to senior executives as a reward for achieving financial goals within the business.

- Fin24.com