Ngonyama valuation update

15 April 2015 Ngonyama valuation update Update; Anchor research team Summary of valuations, projected returns and portfolio positioning: The BEE schemes comprising Ngonyama Capital continue to offer, in aggregate, a compelling risk-reward equation. Our projected annual returns (on an IRR basis) range from 18% in the case of Yebo Yethu to more than 40% in Phuthuma Nathi s instance. Our portfolio positioning remains biased toward deep-yield and business quality in the case of Phuthuma Nathi, and we also continue to favour the likely convertibility and limited downside that MTN Zakhele offers (together with a solid forecast total return). We retain exposure to Sasol s schemes, but remain mindful of the significant gearing in Sasol s Inzalo scheme this asset was recently underwater given the sharp dive in Sasol s share price, but the subsequent recovery in Sasol s share price has created more equity and driven the projected returns of Inzalo up nicely. Liquidity in this particular asset is limited at this point. Projected IRRs various BEE schemes: Instrument: Sasol Inzalo Sasol BEE ord Phuthuma Nathi Yebo Yethu MTN Zakhele * Current share price: R 66.50 R 332.00 R 142.60 R 63.11 R 120.55 Assumed underlying share % p.a 10.0% 10.0% 10.0% 3.0% 10% Expected annual IRR: 24.3% 25.2% 41.2% 18.1% 23.1% * assumes conversion Ngonyama portfolio exposure: Phuthuma Nathi: We remain very comfortable with the investment thesis of Phuthuma Nathi. At the current share price of R142 with a balance sheet that is now free of preference share funding, investors are likely to receive the full dividend flow attributable to the scheme s investment in Multichoice South Africa in FY15. We estimate that this should amount to more than R1.1bn, or R16.70/share. This equates to a yield on today s (15 April 2015) price of 11.7%. Given that the Phuthuma Nathi scheme is perpetual in nature and unlikely to ever convert into freely-tradable listed shares, our preferred valuation methodology has always been to apply what we deem to be a sufficiently conservative dividend yield to the group s full dividend flow (i.e. once all the preference share debt has been expunged) in capitalising the income stream into a fair share price. At a 9% dividend yield (this high to account for illiquidity rather than business quality considerations), we estimate a share price of R224/share in FY17 (our terminal value for purposes of this exercise). Discounting this value back to present day, together with likely dividend flow from FY15-17 at a 15% discount rate, we arrive at a fair value of R203/share today: Dividend discount model, ZAc: FY15 FY16 FY17 Dividends per share 16.65 18.31 20.14 PV factor 1.07 1.23 1.42 PV of dividends 15.56 14.88 14.23 Sum of PV dividends 44.67 PV of terminal value 158.16 Fair value 203 Terminal value: 224 (at 9% dividend yield) Discount rate: 15.0% Note: PV factor for FY15 is less than 15% due to period representing less than 12 months from present day As a sanity check, we also perform a separate valuation applying a fair market P/E multiple to Multichoice South Africa which results in a significantly higher value this, however, does not take account of illiquidity considerations: Anchor Capital (Pty) Ltd, FSP number 39834. www.anchorcapital.co.za 1

To be conservative, we have upgraded our EV/EBITDA multiple assumption on Africa to 13x, which leaves South Africa at an implied EV/EBITDA multiple of 7.4x. Using this as a valuation yardstick, we estimate Vodacom SA accounts for 73% of group value (down from 84% of value when we originally researched Yebo Yethu). Notably however, our absolute value of R151mn for Vodacom SA is slightly higher than our original figure, due to the moderate growth in EBITDA from FY13 to FY14. Vodacom EV/EBITDA valuation: Share price: R 139.10 # of shares in issue (mn) 1 488 Market cap (Rmn): 206 974 add: net debt (1H15) 16 006 Enterprise value 222 980 Group EBITDA (12m trailing) 27 115 Group EV/EBITDA 8.2 Justified EV/EBITDA - Africa 13.0 Justified EV - Africa ops 55 328 Equals: implied EV of Vodacom SA: 167 652 Vodacom SA 12m trailing EBITDA 22 510 Implied Vodacom SA EV/EBITDA 7.4 Our recommendation on Multichoice remains a BUY, where we expect annual total returns in excess of 30% (of which 10-12% comes from initial dividend yield). Please see Appendix B at the end of this report for our Multichoice SA/ Phuthuma Nathi earnings and dividend forecasts. Yebo Yethu (Vodacom): Yebo Yethu s performance has been disappointing since our initial coverage of this investment, with the share price rising from R54 to R60 over a period of 15 months. At the same time, Vodacom Group (the main valuation reference point) has risen from R118 to R139/share a gain of 17%. On the face of it, this would imply that the discount to intrinsic value has risen moderately, but in fact we think this is not the case. We remind investors that the underlying investment in Yebo Yethu is Vodacom South Africa and not the Group, and it should therefore be noted that in the most recent reported results (1H15) the EBITDA of Vodacom s South African operations shrank by 5%, while its Rest of Africa segment grew 21%. Vodacom s Rest of Africa operations now account for 17% of group profit and, we estimate, a far greater proportion of value given the substantially higher growth rate. less: net debt - Vodacom SA -16 006 Equals: equity value of Vodacom SA 151 646 % of group value 73% Given the above valuation estimate for Vodacom SA, our implied see-through value estimate for Yebo Yethu is R95.71/share, with the current share price at a 37% discount to this value. Yebo Yethu Valuation (current), Rmn: Vodacom mkt cap 206 974 Vodacom SA proportion of value: 73% Estimated value of Vodacom SA (100%) 151 646 Yebo Yethu % stake 3.44% Yebo Yethu value 5 217 less: notional vendor financing outstanding (2 690) Equity value of Yebo Yethu: 2 527 Yebo Yethu shares in issue (million) 26.4 Per share value R 95.71 Current share price R 60.60 Discount to see-through value: -37% We remind investors that, while this seemingly deep discount to see-through value likely only compensates investors for the lack of liquidity in Yebo Yethu (as well as no ultimate listed vehicle), the attraction of the scheme is the gearing inherent in the structure as the notional dividend flow on the A shares steadily reduces the notional vendor financing outstanding. /continued... 2

We estimate the current notional vendor financing to be just less than R2.7bn, while dividends received exceed R500mn (which is greater than the interest on the notional debt). We downgrade our expectation of annual dividend growth from 5% to 3% in order to account for Vodacom SA s recent disappointing results which signal to us that the group has greater headwinds which should persist for some time. We assume the value of Vodacom SA grows in line with this dividend growth. This results in a likely enterprise value of R5.7bn for Yebo Yethu in 2018, with notional vendor financing likely to have declined to R1.6bn resulting in 19% annualised growth in the equity value of Yebo Yethu over the next 3 years: Yebo Yethu 2018E value, Rmn: Of course, the above scenarios do not take account of any dividend flow received by Yebo Yethu shareholders. Vodacom SA retains the option to purchase sufficient A shares from Yebo Yethu from July 2015 (the facilitation period) in order to expunge the notional vendor financing. If they choose to do this, Yebo Yethu shareholders would thereafter receive full dividend flow from the remaining shareholding. We have no certainty on the timing of this, but if Vodacom SA chose to sell sufficient shares in FY18 to settle the vendor financing, we estimate the dividend flow on the remaining shares would amount to a 9% dividend yield on the equity value (without any discount applied) at that date. This should provide a valuation underpin. Our view on Yebo Yethu remains much the same as before: we think the valuation and financial structure provides attractive upside, but if anything the underlying asset s growth trajectory has worsened in our view which makes the risk/reward equation tilted slightly downward vs our previous expectations we previously thought the equity value of Yebo Yethu would likely grow by 25% p.a.; this is likely to be 19% or less now. Nevertheless, this still presents investors with a fairly attractive equation. HOLD. The above highlights that if the discount to intrinsic value on Yebo Yethu is unchanged from current levels (37%), investors should receive annualised capital gains of 19%. Of course, any dividends received would add to this figure. To stress-test the valuation for a scenario where Vodacom SA achieves zero growth in value or dividend flow over the next 3 years, we estimate the outcome would look as follows: Yebo Yethu 2018E value, Rmn: Sasol Inzalo Sasol Inzalo has been the most disappointing of the BEE investments we have entered into since inception of Ngonyama. In April last year, the time we purchased our first Inzalo share the Sasol share price was in the region of R580 and our intrinsic value of one Inzalo share was R130 the price of oil at that point was $110 a barrel. In September the equation for both Sasol and Inzalo had changed dramatically. Oil dropped from $103 at the beginning of September to below $50 in early January, having a major impact on the price of both Sasol (-40%) and Inzalo (- 60%). Sasol vs the oil price, rebased to 100: While the above is a far less attractive outcome, we believe it represents a fairly bearish scenario. Source: iress, Anchor Capital 3

15-Apr-13 06-May-13 27-May-13 17-Jun-13 08-Jul-13 29-Jul-13 19-Aug-13 09-Sep-13 30-Sep-13 21-Oct-13 11-Nov-13 02-Dec-13 23-Dec-13 13-Jan-14 03-Feb-14 24-Feb-14 17-Mar-14 07-Apr-14 28-Apr-14 19-May-14 09-Jun-14 30-Jun-14 21-Jul-14 11-Aug-14 01-Sep-14 22-Sep-14 13-Oct-14 03-Nov-14 24-Nov-14 15-Dec-14 05-Jan-15 26-Jan-15 16-Feb-15 09-Mar-15 30-Mar-15 Analysis continued... When the oil price started coming off aggressively in September we took the decision to hold onto our Inzalo position. In part because we (and the rest of the world) were unsure if the decline in the price of oil was/is going to be temporary and more importantly because the decision to invest in Inzalo was driven by the value unlock (removal of discount and gearing) the structure offers investors as the scheme matures in 2018. It must be noted that at the present Sasol share price, Inzalo s debt is more or less equal to the value of the Sasol shares it owns. However, with the dividend received being a set amount each year (unaffected by the recent change in Sasol s dividend policy from progressive to a set dividend cover) and the scheme only maturing in 2018, investors should still receive an acceptable compound return provided Sasol s share price delivers moderate annual gains from current levels. We continue to value the investment using a probability-linked range of scenarios for the Sasol share price and in the mid-range of our possible outcomes the investment should generate an IRR of 24% over the next 3 1/2 years. Assuming a Sasol share price of R650 in September 2018 (a 10% p.a. gain from current levels), Inzalo will deliver an IRR of 24%. Assuming Sasol delivers 10% annual gains from current levels, we estimate an IRR of 25% would be delivered by Sasol from now until maturity of the scheme. We have used Bloomberg consensus estimates in deriving our forecasts of cumulative dividends. MTN Zakhele: MTN Zakhele has performed relatively well since our initial research document, with the price rising from R87/share to current levels of R119 (+37%). However, it should be noted that most of the volumes we purchased were in June- August 2014, with prices averaging around R120/share and thus gains from these levels have not been experienced. At the same time, MTN s share price has been volatile, but tracking essentially sideways over the past year: MTN share price, ZAc: 27000 SOL Current Sasol share price R 455.93 SOLBE1 Sasol BEE share price R 330.00 Per annum gain in SOL 10% Term to go: Sasol share price end term: R 630.42 Cumulative dividends: R 68.00 IRR: 24.7% 3.40 years Source: iress, Anchor Capital 25000 Source: iress, Anchor Capital Sasol BEE (SOLBE1): Sasol BEE shares are currently trading at R330/share, a 28% discount to the ordinary shares. As a reminder to investors, SOLBE1 shares rank pari passu with ordinary shares in respect of dividends and economic interest, and there is no debt in the structure. Upon maturity of the scheme in 2018, these shares convert into Sasol ordinary shares (freely tradable by anybody), collapsing the current discount to sum of the parts. 23000 21000 19000 17000 15000 Source: TBO, Anchor Capital From a valuation perspective, our updated estimated seethrough valuation (excluding capital gains tax [CGT]) looks as follows: /continued... 4

The above valuation highlights an intrinsic value of R164/ share for MTN Zakhele, and we are getting significantly closer to the date at which the scheme matures. The scheme unwinds in November 2016, at which point the MTN Zakhele board is free to decide (based on shareholders wishes) on how to proceed. We think the most likely scenario is that Zakhele will elect to either sell sufficient shares to expunge the remaining funding and then distribute the remaining shares to Zakhele shareholders, or sell all of the shares and distribute the excess cash (net of funding) to shareholders. In either scenario, this will result in CGT leakage but will also result in the discount to sum of the parts being unlocked. We present what we view as a likely range of outcomes below, given the various assumptions around share price growth in MTN itself over the next year and a half (see table overleaf Appendix A). 5

Appendix A: MTN share price growth assumptions, R: Appendix B: Multichoice SA/ Phuthuma Nathi earnings and dividend forecasts Based on the above table, if MTN s share price rises by 10% annualised between now and November 2016, investors would receive an IRR net of all CGT leakage of 22%. Conversely, if the share price does not grow at all over this period, the IRR on Zakhele would still be 12% - we believe this continues to represent an attractive risk-reward equation for investors in the scheme. 6

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