money&investing
Staying power: Petrol stations in their current guise are unlikely to suddenly disappear
FASHION RETAIL
have made it difficult for ordinary investors to share in the ownership of the SA petroleum sector’s bricks-and-mortar assets. Barriers include onerous licence requirements, complex legal structures and environmental legislation. Watters tells the FM that SA has about 4,000 petrol stations, most of them controlled by the major oil companies and a small group of private developers and property owners. “The industry is quite fragmented, so there’s a big opportunity for consolidation,” he says. “People still need income and petrol stations are a more defensive option at a time when traditional sectors are under pressure.” He refers to the retail and office sectors in particular, which he believes are vulnerable on the back of pandemic-related rental losses and lease cancellations. “Though the listed property sector as a whole has gone through a tough 18 months it’s the big diversified Reits that have been on the back foot. The only stocks that have performed are specialist ones such as logistics-focused Equites, self-storage owner Stor-Age and multilet industrial plays Stenprop and Sirius.”
Though Afine did not market itself via the usual prelisting roadshows to potential investors, it is likely to attract smaller retail investors looking to diversify away from the sector’s typical mixed-bag offerings. Howard Penny, equity research analyst at Anchor Stockbrokers, says that at last week’s listing price of R3.67 a share and interim dividend guidance of 25c a share, Afine offers a dividend yield of more than 10%. There’s further upside on the back of potential accretive acquisitions. Penny notes that a longer-term risk is the global shift to electric and other fuel-efficient vehicles. But he doubts whether petrol stations in their current guise will suddenly disappear, because petrol and diesel cars bought today will probably still be on the roads for at least the next 10 to 15 years. He adds: “However, there will most likely be an evolution of stations over the long term to offer a blend of food, retail and convenience alongside different fuel and energy options.” x
Watters says a key attraction Your only tenants of owning service stations is the are the large oil long leases — 15 to 20 years on companies like average compared with three to Sasol, Engen, Shell five years for shopping centres and BP. So your and offices. “Also, your only tenincome streams ants are the large oil companies are secure like Sasol, Engen, Shell and BP. So Mike Watters your income streams are secure.” Afine owns just seven service stations scattered across four provinces, worth R307m. But Watters is confident that the portfolio can be bulked up to R1bn within the next 18 months as the company has first right of refusal to Petroland’s developments. He also expects strong appetite among existing service station owners to list their properties in exchange for Afine shares, given how “efficient” the Reit structure is. “It provides liquidity and tax benefits for property owners,” he says. Watters, Todd and a few other shareholders have self-funded the business with a loan to value of just below 30%. But they will go to the market to raise capital at a later stage and, Watters says, “hopefully bring some institutional investors on board”. 52
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December 16 - December 22, 2021
Leading the fashion pack It’s been a long grind through the woods, but cash-flush Mr Price is back on form — and winning market share Adele Shevel shevela@businesslive.co.za
ý Riots and lockdowns aside, SA’s fashion and home retailers had one of their better years on the JSE in 2021. Pepkor, for example, has soared 60% in the year to date, while Truworths has rallied more than 45%. TFG and Mr Price lagged somewhat, though gains of 17.3% and 20% respectively are hardly shabby. But it’s over a period of five years that Mr Price has really shown its worth as an investment. Where Truworths and TFG went backwards — total returns for both were a negative 14.7% and 1.5% respectively over the same time frame — Mr Price has gained 49% in value. That comfortably bests the 41% returned by the JSE’s all share index, and shows a welcome return to form for what was long a retail darling. After barely putting a foot wrong in the years after its listing, Mr Price shares were pummelled in 2016 after some bad fashion blunders made earnings growth grind to a near halt. It’s been a somewhat treacherous ride since. The group’s shares recovered in the wake of 2018’s
Mr Price BUY Target price: R227.50 Potential upside: 13.1% * Based on analysts’ consensus forecast
Pepkor HOLD Target price: R24.50 Potential upside: 13% * Based on analysts’ consensus forecast
