- Dividend Pressure: The group declared a P17.6 million dividend, down 30.7% from the previous period
- Cash Flow Strain: The Kenya investment has not been generating positive cash flow, forcing other assets to subsidise loan repayments
- Exit Strategy: The company is exploring an exit from the investment, with a valuation process underway
- Decision Timeline: The CEO has set a two-month deadline to present a concrete plan to shareholders
The next two months will be crucial for investors and shareholders of Letlole La Rona as Chief Executive Officer (CEO) Kamogelo Mowaneng faces a key decision on the company’s investment in Kenya.
With extensive groundwork still being done, Letlole is expected have to take a financial hit on this underperforming asset as it looks set to exit OAL, a special-purpose vehicle incorporated in Mauritius, owning an industrial asset in a prime industrial node in Nairobi, Kenya.
For the past year, uncertainty has loomed over the investment, leaving investors eager for a clear strategy. The underperformance of the investment has starved shareholders of bumper dividend, with the group hoarding cash while it still assesses this investment which is being subsidies by other assets, as per Mowaneng’s remarks.
At the end of June 2024, the group reported that the asset’s value dropped from approximately P109 million to P3.7 million. The value has reportedly dropped further, prompting an exit plan.
Mowaneng Promises an Update In 2 Months
During the results presentation for the six months ended 31 December 2024, Mowaneng said the group is currently discussing with its co-shareholders on the investment. She said a whole valuation on the asset is “expected inpreparation for the exit”. All eyes are now on Mowaneng, who has set a two-month timeline to update shareholders. The outcome of this decision will shape Letlole’s dividend outlook, given that the company held back on bumper dividend while it still assesses the asset.
ICR Shows Letlole Could Have Paid More Dividend
The presentation shared by the group’s outgoing CFO shows that their interest coverage ratio (ICR) is at 4x. This measure helps the company to be in a stronger position to handle its debt, having also reduced debt obligation from proceeds of the sale of its underperforming assets, the CFO shared during results presentation.
Cash Also Preserved For Maintenance
Additional cash is also being preserved for maintenance plans for its properties, according to Mowaneng. But less emphasis is on this factor given that the CEO said this doesn’t really affect cash flow that much, citing 2021 experience. The group seems to have sufficient cash from operations to cover its interest on debt, according to market analysts.
Dividend Lower Because Of Kenya Investment
But the group was still be reluctant to use some of that cash to pay more in dividends for its interim period. The group declared dividend of P17.6 million, which is 30.7% lower than the prior comparable period, citing uncertainty over AOL.
The distribution declared represents an increase of 19.4% on the final distribution declared on the 28th of June 2024, in respect of the six months period ended 30th June 2024.
Mowaneng acknowledged the uncertainty about “how much longer we will still be tied into OAL”, adding that the group needed to just make provision for still paying off the interest on the P100 million loan acquired for the investment. The acquisition totaled approximately P100 million, with the majority financed through a shareholder loan and a small portion for equity.
Cash That Could Pay Investors Pays Off AOL Loan
Because that investment has not been returning positive cashflow, the other assets have had to subsidise, Mowaneng shared, adding that cash that could have otherwise gone to investors has now gone to paying off the loan. The shareholder loan accrues interest at 4% per annum and is repayable over five years.
How Letlole Business Model Works
Historically, Letlole has followed a 100% acquisition model, where each investment is expected to generate enough returns to cover:
- Property and administrative expenses
- Financing costs from acquisition
- Dividends for shareholders
