Anthony Clark:

The Sabvest makeover

It’s an investment vehicle of a highly successful businessman who owns 70% of the ordinary shares and 11% of the “N” shares of a highly illiquid R2.6bn investment fund, listed on the JSE. Its name is Sabvest.

Over many years its CEO, Chris Seabrooke, has built a niche investment holding company of a range of domestic and offshore listed and unlisted assets. It has a near unbroken 10year record of NAV growth averaging 21% compound; 65% of assets are offshore and just over half the vehicle’s value is in unlisted investments (52.6%).

So why am I writing about an illiquid family investment trust? The simple answer is that after many years, the conservative and matronly Sabvest has become unrecognisable. Its facelift began at the start of 2018, when its biggest asset, SA Bias, agreed to sell its International Trimmings & Labels arm (ITL) for $186.9m (the equivalent of R2.3bn at the time of the announcement) to Mandarin Industries. This sale was pretty much equal to the entire market valuation of Sabvest, so all the other assets were in for free. Sabvest then agreed to invest directly in Mandarin to gain a minimum 30% stake, and got a fat cash balance to boot.

Together, SA Bias, ITL and Mandarin Industries are a leading global provider of those annoying little labels that are sewn into any new item of clothing you buy. The labels are amazingly cash generative and hugely profitable. This is the cornerstone of Sabvest. Those stakes have a value of R1.26bn.

Besides its portfolio of listed local and offshore equity assets worth R1.1bn in companies such as Alphabet, Amazon and Facebook in the US and JSE listed stocks such as Brait SE, Metrofile and Torre Industries, Sabvest has invested in some unlisted defensive, noncyclical domestic food stocks. The food stocks are valued at R113m and are profitable and expanding and have blue-sky potential.

The new investment direction was also triggered by the sale and improved liquidity of a huge parcel of shares held by an offshore investor.

Those with long memories will recall that in the late 1990s tech stocks in SA were red hot. One of them was MGX, an IT business of which Ronnie Price was chair. But in 2000 the wheels started to come off.

Many of MGX’s assets ended up in what is now Metrofile, the document storage and digital business, controlled by Seabrooke. Price mopped up all the available “N” shares in Sabvest and became the largest shareholder in them, dramatically reducing tradability.

Nearly two decades later Price’s stock is being sold in a placement at R34.60, a 37% discount to the near R55/share NAV of Sabvest. Around 58.8% of Sabvest “N” are being placed. The R576m deal will be concluded by the time the IM hits the shops.

This is great news, as investors will get to buy into Seabrooke’s investment business and prowess at a fat discount to NAV. Sabvest will hopefully gain a much wider net of private and institutional investors, thereby improving liquidity and tradability. After the placement, liquidity of Sabvest “N” will rise from 23% to 67%. With 11% of the “N” shares, Seabrooke will be the largest individual shareholder.

Investors in the placement and Sabvest will have to place much faith in management’s ability of to maximise value and grow the business. They will be partnering with an investor with a proven long-term track record of managing assets both onshore and offshore and who has been active in business restructuring over two decades.

There is an opportunity here to jump in as Sabvest reinvents itself under the full control of Seabrooke. Further upside should come when the “N” shares are enfranchised, which should help the current discount to narrow.

I would certainly look at Sabvest once the deal is done. My own pension fund has subscribed — so I’m putting my money where my mouth is.

Sabvest will hopefully gain a wider net of private and institutional investors, improving liquidity and tradability