Still outstanding, de­spite a glar­ing lack of de­tail

Financial Mail - Investors Monthly - - Analysis - Marc Hasenfuss

Sab­vest is one of the most en­dur­ing in­vest­ment com­pa­nies listed on the JSE. It has been listed for nearly 30 years — quite an achieve­ment con­sid­er­ing how many in­vest­ment com­pa­nies have come and gone on the JSE in that time.

The five-year re­turns on Sab­vest, even if the re­newed div­i­dend pay­ments are left out of the equa­tion, have been quite outstanding. In 2011 the share was trad­ing as low as 600c — a nifty medium-term re­turn.

Sab­vest of­fers an in­trigu­ing port­fo­lio struc­ture with the bulk of its value in un­listed in­dus­trial tex­tiles busi­ness SA Bias In­dus­tries — a peren­ni­ally prof­itable niche player with op­er­a­tional hubs world­wide.

One sus­pects SA Bias ac­counts for the bulk of Sab­vest’s R1.334bn un­listed port­fo­lio. But how much ex­actly is not easy to gauge.

The prob­lem is that Sab­vest seems to go out of its way not to dis­close too much de­tail around SA Bias — even go­ing so far as to present its un­listed port­fo­lio (which also in­cludes a 22% stake in spe­cial­ist food in­gre­di­ents busi­ness Sun­spray and Masi­mong Chem­i­cals) sans a break­down of the in­di­vid­ual in­vest­ments.

Sab­vest’s interim re­sults to end-June makes only a terse ref­er­ence to SA Bias, not­ing the com­pany’s re­sults were “steady and in line with the pre­vi­ous year” and were aided by the in­clu­sion of 100% of Flow­max Hold­ings (pre­vi­ously Sab­vest held a 60% stake).

It is dif­fi­cult, in the interim in­come state­ment, to gauge the per­for­mance of SA Bias be­cause of the ef­fect of the marked to mar­ket move­ments of Sab­vest’s R500m listed port­fo­lio — which in­cludes hold­ings in Datatec, Metro­file, Torre In­dus­tries, Trans­ac­tion Cap­i­tal and Brait.

In­vestors may won­der why Sab­vest di­rec­tors even bother say­ing un­listed in­vest­ments con­tinue to be val­ued us­ing the main­tain­able earn­ings model (net op­er­at­ing profit af­ter tax)

ad­justed for net cash/debt. For the record, Sab­vest pointed out that the multiples were un­changed from prior pe­ri­ods.

It is, though, pos­si­ble to find some re­as­sur­ance of SA Bias’s ro­bust­ness by not­ing Sab­vest’s will­ing­ness, de­spite some nasty marked to mar­ket losses on its listed port­fo­lio, to hike the interim pay­out 9.5% to 23c/share.

The best way of looking at an in­vest­ment com­pany is its net as­set value (NAV). Sab­vest re­ported a NAV of 3,395c/share at the end of June — a fig­ure that might have re­duced slightly with the strong(er) rand af­fect­ing values on the R117m off­shore cor­po­rate bond port­fo­lio and the strate­gic in­vest­ment in Corero Network Se­cu­rity (listed on AIM in Lon­don).

Still, IM es­ti­mates, us­ing a re­vised NAV of R32/share, that Sab­vest’s slightly more trad­able N-shares are offering a dis­count of over 16% on what could be, and prob­a­bly is, a con­ser­va­tive val­u­a­tion of SA Bias In­dus­tries.

Rec­om­mend­ing in­vestors ac­cu­mu­late Sab­vest N-shares at cur­rent lev­els comes with a pro­viso: the share is frus­trat­ingly illiq­uid. And Sab­vest buys back its own shares. It re­pur­chased 6,285 or­di­nary shares and 188,299 N-shares in the interim pe­riod.

But it can’t be too long be­fore Sab­vest casts off its ar­chaic N-shares struc­ture. A sin­gle class of shares will re­move the dis­tract­ing dif­fer­en­tial in the price of the or­di­nary and N-shares, and Sab­vest will set­tle at lev­els where di­rec­tors might be com­fort­able is­su­ing new shares for cash to new in­vestors.

Though Sab­vest cer­tainly does not des­per­ately need a dol­lop of cap­i­tal, ex­tra share liq­uid­ity would boost mar­ket in­ter­est and give it a war ch­est with which to top up stakes in its favourite listed com­pa­nies (where some share prices are offering con­sid­er­able longer-term value).

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.