Saab to boost Sekunjalo cash flow

2010-06-04 14:14

Cape Town - Empowerment group Sekunjalo [JSE:SKJ] said the acquisition of a strategic stake in the South African arm of Swedish multinational Saab will boost cash flows.

While there was not a surfeit of financial information accompanying the deal, which was announced on Thursday, Sekunjalo CEO Khalid Abdullah stressed the investment in Saab SA would yield dividends from year one.

"The company has been operating in SA for around 10 years, through about seven subsidiaries."

Abdullah explained that Sekunjalo could not disclose too much detail around the deal (turnovers and profits) because of competitive issues affecting Saab SA.

The deal entails Sekunjalo taking 25% of Saab SA's voting rights and a 5% economic interest. There is an option for Sekunjalo to extend the economic interest to 25% - depending on Saab SA's performance over five years.

Saab SA's offerings include command and control solutions and tactical communciation as well as aerospace, surveillance and sensor systems.

While a Stock Exchange News Service (Sens) announcement indicated the Sekunjalo investment - subscribing for 372 Saab SA shares - was for a nominal amount, the deal made a significant impact on the company's pro forma financial results for the six months ending February 2010.

Had the Saab deal been effective at end-February 2010, interim earnings for Sekunjalo would have increased from 0.71 cents per share to 5c/share. Headline earnings would have shifted from 0.23c/share to 4.58c/share.

Perhaps more critical is the deal's effect on Sekunjalo's tangible net asset value (NAV), which would have increased from 65c/share to 69c/share.

Abdullah said the Saab deal took Sekunjalo the best part of a year to negotiate, and was in line with the company's promise of seeking out partnerships with major corporations.

"I think a key to our success was that while we are only a partner at Saab SA, they realised that did have experience in running our own businesses."

Sekunjalo also has a strategic partnership with telecommunications giant BT.

Abdullah felt the Saab deal would provide further momentum to Sekunjalo's deal flow. "We think we can deliver a few more deals of this nature."