CPH is an investment holding company with a logical investment strategy—petroleum and real estate. Daryl Ducasse, co-founder and CEO, discusses the company model and industry insights.


Love it or hate it, the demand for fossil fuel is here to stay—at least for now. This is according to the development stage start-up, CPH, which has ambitions of listing on the FINRA regulated US OTC market and the JSE’s AltX board, during which time it hopes to raise ZAR2.3-billion to complete developments and purchase bulk imports of petroleum products to store, market and distribute on a wholesale basis to customers in Southern Africa.

Its objective is to create an opportunity for savvy investors to benefit from the heavy industrial and infrastructure needs that support the delivery of refined petroleum products. To achieve this, the board will ask its shareholders to approve certain acquisitions and development plans, as well as the proposed listing applications during 2017. It has acquired industrial real estate assets for infrastructural development in the petroleum sector—bulk storage and wholesale depots, which are distribution channels to get products to consumers at retail forecourts.

CPH delivers investors security of capital through real estate holdings and good forward earnings potential from robust petroleum sales revenues:

  • Petroleum is a high demand, high sales volume commodity (SA consumption of all liquid fuel products in 2010 was 25.6-billion litres. 2015 was 30.4-billion litres and BP’s 2030 scenario planning points to exponential growth in import demand—forecasts that are targeted to satisfy local consumption growth);
  • Real estate offers security of capital and capital growth.

“When you combine the efficiency of these two economic models you get what we believe is the most sensible and balanced portfolio to work with. All investors are after security of capital, income and capital growth. We’ve created an unusual and innovative balance just by sticking to the basics of product demand and tangible net asset value,” says Ducasse.

The company’s valuation and transaction model also brings an interesting angle to the investing world. Although loathe to give too much detail about what gives this start-up a keen competitive edge, Ducasse admits the team’s view of the investment world is unusual.

“It could be precisely because of our thinking that this model proves to be the tool which gives us a healthy pricing advantage over comparable investment opportunities, and our favourite benchmark—REITs.”

He explains further, saying that, “REITs generally acquire rental income from real estate assets. Those assets are held in focussed portfolios, participating in diverse sectors, such as retail, office, hospitality and usually lighter industrial portfolios. For years, REITs have been one of SA’s best performing sectors in total return.

“We apply what we think is one of the most essential investment analysis tools—efficiency. When you silence the valuation noise from the cosmetic competitiveness of real estate, it all comes down to space, income and value efficiency to deliver return efficiency to shareholders,” he says.

The company believes in supporting sellers of assets and operations to the company—their vendors—making them accountable for operational performance and their own success by retaining their management for no less than 2-year’s post-acquisition. “This ensures continuity of operations during our succession plan period and bridges the gap between the operational management and our shareholders—it takes time to integrate and fully take over operations,” he says.

One of the key features in their model is their approach to income. “We don’t believe in acquiring assets on EBIT, which is what REITs do, but we do believe in paying our vendors on forward earnings rather than historic—we’re investing in people and great locations, with a long-term value strategy in mind,” says Ducasse.

He explains they acquire assets at pe ratios below the average issuer in the REIT sector—a price-earnings ratio is a tool of valuation and relativity; generally speaking, the higher a pe ratio, the longer it takes to have your original investment capital returned.

“When you start to pay for what you can actually distribute and the valuation methodology means you can pay less for the same income and real estate asset that a competitor is paying, you have the beginnings of a fundamental shift in investor decision-making—why pay more and receive less income?”

Ducasse places emphasis on the importance of treating shareholders and stakeholders with the respect they deserve. “Their capital is hard-earned and so is trust. Shareholders should be rewarded before management rewards itself.

“Cardinal is the only investment company with this niche focus that we are aware of. Specialist focus, decades of industry experience, strong founding equity and key capital partners, clear strategic objectives for each asset and high market demand for the commodities mean there is absolutely no distraction from our core focus on creating value for shareholders—and we’re loving what we do. That is one of the most important basics of entrepreneurship,” he details.

While SA struggles to achieve economic growth and build a culture and environment of saving and investment, it is important to note that investors, globally, are seeking increasing rates of return—this has opened up emerging and developing markets as viable alternatives for yield seekers.

“In deciding whether our model would be acceptable to market, we looked at the demand side and established that:

Petroleum has a 10-year plus horizon of commercial demand—this means we can comfortably plan appropriate growth strategies for our shareholders, with annuity income in mind;
Green energy for vehicular/mechanised use is not yet fully developed on a global and local scale, it is too expensive to convert or replace for the average consumer or it needs to progress beyond young, wealthy, early adopter’s stage.
Ducasse points out that the USD/ZAR gap makes it affordable and appealing for global capital to invest in infrastructure growth in Southern Africa. “We believe infrastructure and industrial growth is needed and we’re acting on that belief—the ethos of our model combines the elements of socio-economic solution, job creation, and self-sufficiency. South African consumers are beholden to global influences. This is self-evident at the pump and we are very concerned about the effects of fuel price increases on food basket inflation—this affects the poor.

“Therefore, less dependency, more self-sufficiency, greater entrepreneurship development and more socio-economic contribution is needed if we are to begin to claw our way back to economic sanity,” he says.

With regard to current industry trends and the core threats facing business owners, Ducasse says that, in SA’s petroleum sector, there has been disinvestment by the major oil companies over time.

“Many assets have gone to resellers or authorised distributors under supply agreements. With disinvestment comes opportunity and more international players have entered SA to compete—the last remaining downstream petroleum assets are now targeted by foreign capital. Not that there is an objection to the principle of foreign direct investment—it is that most of SA’s petroleum assets are already controlled by foreign capital, and we want to put more of the benefits of those assets and income into the hands of more South Africans,” he says.

South Africans are also at a disadvantage with local production capacity—the effect is absolute reliance on global trends and influences—our local production is insufficient to cater for current, let alone future demand.

“Various bits of legislation that make it difficult or prohibitive for all people to benefit from the opportunities in the market are counter-productive to our economy—we are renowned in global commercial circles for being one of the highest red-tape environments to work in. Our economy needs stimulus, not more regulatory hurdles,” he notes.

While Ducasse foresees several challenges facing the company in the next few years, it is their site developments and navigating the regulatory and compliance environments that are priorities.

“Those are ever-present demands, so knuckling down and getting it right is the only option. Returns come from making the right decisions, and we’ve taken the time to do this right—we’ve built a great company, a portfolio of value, and valued relationships and partnerships,” he says.

Currently, CPH is in the process of developing new technologies and product offerings. The company intends developing a bulk fuel storage and distribution facility on their Germiston South site, has plans to acquire and expand two facilities in Zeerust and Parys and are negotiating the acquisition and development of a strategic site in Namibia.

An international IT developer is assisting with the development of new trading technology. Early-stage discussions with the South African Development Bank have led the CPH executives to believe they will obtain funding for projects in addition to capital raised through their proposed listing.

CPH’s vision for future growth is extensive. The company believes growth in industrial and infrastructure development in Southern Africa is key to economic stimulation and they will, therefore, pursue their strategy of acquisition and development in this space.

Daryl started selling residential properly in 1989. Discovering he had a preference for commercial transactions, he began his journey with JHI in 1990 and has worked in or been connected to commercial and industrial property and the listed environment since.

Today, he has a small transaction and risk advisory business, Merkurius Capital Solutions, which founded CPH, and he is the current CEO of Cardinal Petroleum Holdings Limited.

He attributes his success to adding value to clients, delivering research data to back up strategies and providing risk mitigation in transaction structures.

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