Kyalami Surface Business Plan — Investment Case and Returns

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

Section 27 of 31

Investment Case and Returns

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An indicative 35.2% IRR and 3.01x MOIC on the base case — with the caveat that the return is created in Years 4 and 5 and realised on exit.

Table 39. Investor return summary, base case

Assumes exit at the end of FY32 at 6.0x EBITDA on a cash-free, debt-free basis.

Item		Value
Institutional equity subscribed		R11.50m
Institutional shareholding on full deployment		52.0%
FY32 EBITDA		R8.62m
Exit multiple applied		6.0x
Enterprise value at exit		R51.7m
Less net debt / plus net cash		R11.3m
Equity value at exit		R63.0m
Investor proceeds at exit		R32.8m
Dividends received over the plan		R1.80m
Multiple of invested capital		3.01x
Internal rate of return		35.2%
Weighted average cost of capital		18.2%
Project-level net present value at WACC		R7.2m
	Three things an investment committee should hold against this return First, the return is almost entirely terminal value. Discounted at WACC, the five years of explicit free cash flow do not recover the invested capital; the positive net present value of R7.2m comes from the exit. If the exit does not happen on schedule, the return is not merely delayed — it is substantially different. Second, 35.2% rests on a 6.0x exit multiple. At 4.0x — the low end of the range at which South African owner-managed service businesses of this scale transact — the IRR falls to 24.6%. The operating plan and the exit assumption should be diligenced separately. Third, this is a base-case return. The downside case returns nothing and impairs the equity. There is no scenario in this plan in which an investor makes a modest loss; the outcomes are a good return or a substantially impaired one.

Figure 1. The return clears the cost of capital across the plausible exit range

Multiples above 6.5x assume a strategic or consolidator buyer and should not be underwritten.

Valuation cross-check

The 6.0x exit multiple is cross-checked three ways. On a discounted cash flow basis, discounting the five explicit years plus a terminal value at the 18.2% WACC produces an enterprise value broadly consistent with the multiple applied. On a comparable-company basis, listed specialist automotive protection businesses trade well above this level, but they are manufacturers with intellectual property and global distribution and are not appropriate comparators for a two-site South African service operator. On a precedent transaction basis, South African owner-managed automotive services businesses of this scale have transacted in a 4.0x to 6.0x range.

The Company has therefore applied the top of the credible domestic range rather than any part of the international listed range. Applying the midpoint of 5.0x instead would produce an IRR of 30.2% and a MOIC of 2.62x.

Figure 2. Return on capital employed does not exceed the cost of capital until Year 4

This is the clearest single statement of the investment’s time profile. Capital employed is stated net of surplus cash; the ratio is reported as not meaningful where accumulated losses have impaired shareholders’ funds.