Still outstanding, despite a glaring lack of detail
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).