Highveld Detailing Business Plan — Valuation and Investor Returns

The return profile, valuation basis and exit assumptions, and what the numbers do and do not support.

Section 31 of 38

Valuation and Investor Returns

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The base case clears the cost of capital by seventeen points. It does so entirely on the strength of a terminal value that represents 245% of enterprise value, and it fails completely one scenario down. Both facts belong in the same paragraph.

Cost of capital

Table 55. Weighted average cost of capital

Component	Value	Basis
Risk-free rate	10.35%	Long-dated South African government bond yield
Equity risk premium	6.25%	South African market premium
Beta	1.20	Levered beta for consumer and business services
Specific risk premium	3.00%	Start-up, single-corridor concentration, no trading history
Cost of equity	20.8%	Capital asset pricing model with a specific premium
Cost of debt, pre-tax	11.1%	Blended across the term, asset finance and revolving facilities
Cost of debt, post-tax	8.1%	After tax relief at 27%
Target gearing	35%	Debt as a proportion of total capital at steady state
Weighted average cost of capital	16.4%	The hurdle every return in this section is measured against

Discounted cash flow valuation

Figure 1. Discounted cash flow bridge to enterprise value

Table 56. Discounted cash flow valuation

Component	Value	Comment
Present value of explicit-period free cash flow	R-18.3m	FY2028 to FY2032, discounted at 16.4%
Present value of terminal value	R30.9m	6.5x FY2032 EBITDA, discounted to present
Enterprise value	R12.6m	The net present value of the venture
Terminal value as a share of enterprise value	245%	The single most important disclosure in this section
Less: net debt at exit	R1.1m	Term loan, asset finance and revolver less cash
Equity value at exit, FY2032	R64.9m
Equity invested	R24.0m	R15.0m at month 1 and R9.0m at month 15
Money multiple	2.70x

Returns against hurdle rates

Table 57. Investment returns

Measure	Base case	Comment
Project internal rate of return, unlevered	33.4%	Including terminal value; the return on the venture itself
Equity internal rate of return, levered	23.9%	Reflects the two-tranche subscription timing and exit net of debt
Money multiple on equity	2.70x	Over five years
Weighted average cost of capital	16.4%	The hurdle
Spread over cost of capital	17.0 percentage points	On the project return
Enterprise value	R12.6m	Net present value at the cost of capital
Payback on total invested capital	Not achieved within 60 months	Cumulative free cash flow remains negative across the plan period

Which investor hurdle rates this venture clears

Table 58. Hurdle rate assessment by investor type

Investor type	Typical hurdle	Clears?	Assessment
Development finance institution (debt)	10–12%	Yes	The term facility at 10.50% is serviced in the base case and the development impact is strong. The FY2030 cover of 1.03x is the concern, not the return.
Development finance institution (equity)	15–18%	Yes	Equity IRR of 23.9% clears comfortably, and the employment ratio of 5.9 jobs per R1m is the strongest non-financial case in the plan.
Family office / patient capital	18–22%	Yes	Clears on the base case with modest headroom. Requires tolerance for no distributions before FY2034 and capacity to follow on.
Regional private equity	25–30%	Marginal	Equity IRR of 23.9% falls short of a 25% hurdle. The project IRR of 33.4% clears, which means the answer depends on entry price and leverage rather than on the business.
Venture capital	35%+	No	Does not clear. The return profile is a services build-out, not a venture outcome, and there is no optionality that could produce a venture-scale result.
Income or yield mandate	Any	No	No distribution is possible before FY2034. Structurally unsuitable.
The candid summary of the return proposition This venture is priced for an investor whose hurdle sits between roughly 18% and 24% on a levered basis. Below that range it is comfortably attractive; above 25% it does not clear on the base case, and no reasonable adjustment to the assumptions changes that. The asymmetry compounds the point. The upside case returns 5.96x and the downside returns -0.43x. An investor is being asked to accept a plausible total loss in exchange for a base case that clears a moderate hurdle. Whether that trade is acceptable is a portfolio question, not a business question, and it is the question this document exists to let the reader answer.