A little less mystery, please . . .

New deal gives peek into inner workings of SA Bias, but value breakdown of unlisted investments remains opaque

The JSE boasts very few investment companies that offer the only entry point to large and attractive unlisted assets or operations.

These days the bulk of the value in the JSE’S best-known investment companies — notably PSG Group, Reinet, Remgro, Hosken Consolidated Investments, African Equity Empowerment Investments and Brimstone — are all pegged to listed investments.

Brait (Virgin Active, Premier and Iceland Foods), Grand Parade Investments (Burger King and Sunwest) and Trematon (various property plays as well as private schooling) all hold the bulk of their portfolios in unlisted investments. But arguably the most intriguing unlisted portfolio play has been low-key investment company Sabvest. Over the years it seems to have gone out of its way to play down or obfuscate efforts to value its 59.9% stake in industrial textiles business SA Bias Industries.

A transaction involving SA Bias, announced by Sabvest on January 2 (when most serious market participants were still sunning themselves in exotic locales), shows the latitude directors have in valuing unlisted assets — sometimes to the frustration of investors.

SA Bias is a global industrial textiles and products operation that is made up of International Trimmings & Labels Group (ITL), Narrowtex, Apparel Component Manufacturers, Flowmax Group and Sabias Investments.

But financial information — even operational updates on SA Bias — has been scant. In com- mentary accompanying the Sabvest interim results, CEO Chris Seabrooke said results were satisfactory, notwithstanding the effects of the stronger rand on rand-translated foreign earnings. He only added, somewhat innocuously, that trading in SA was challenging while it remained satisfactory offshore.

Sabvest is not a widely held share due to the relatively small float of shares in the hands of the Seabrooke family and other large shareholders. But certainly the reticence to offer detailed commentary on SA Bias — or even the most basic financial information — will not have helped cultivate the market’s interest in Sabvest.

Prior to January 2, Sabvest had officially provided no reasonable valuation guidance around its investment in SA Bias. At the end of June Sabvest valued its unlisted portfolio — made up of the SA Bias stake, along with other significant minority stakes in Classic Food Products, Flexo Line Products and Sunspray Food Ingredients — as a single entity. A collective value of R1.48bn was tagged to the collective unlisted interests, which is hardly helpful in discerning the scale of these investments.

Of course, the few patient punters who have managed to snaffle some Sabvest shares over the years have long suspected the company of woefully undervaluing or underplaying its investment in SA Bias.

Sabvest’s January 2 announcement detailed the sale of SA Bias subsidiary ITL for a huge US$186.9M in cash to a consortium of investors led by businessman Peter Gain (who serves as a nonexecutive director on the board of Jse-listed investment counter Universal Partners).

Sabvest won’t be completely shot of ITL — it will invest directly in the new ITL Group and looks set to take a meaningful 30% stake in the offshore holding company, Mandarin Industries Limited BVI.

ITL designs, manufactures and distributes apparel labelling and identification products such as graphic tags and labels, care labels, screen-printed labels, heat transfers and woven labels, as well as ribbons, tapes and bows. The company has factories and marketing offices in the UK, Canada, China, India, Sri Lanka, Turkey, Bangladesh, Vietnam, Mexico, North America and SA.

Sabvest’s investment in Mandarin will cost $34m, with another R33m invested in ITL SA. Sabvest will also invest R60m in preference share capital with an initial coupon of 8%/year.

Most importantly, the deal gives a glimpse into the inner workings of SA Bias, with ITL International disclosing a chunky R44m and ITL

The disconnect between the directors’ valuation of SA Bias and the value accorded to the ITL transaction does suggest that Sabvest has erred too much on the side of caution