An­thony Clark:

The Sab­vest makeover

Financial Mail - Investors Monthly - - Front Page - AN­THONY CLARK

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

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