Food for thought over listing
The owner of brands such as Denny and Goldcrest just wanted to make a quick buck, say analysts
economy. Even more encouraging, she says, is that Fairvest has forecast dividend growth of a further 8%-10% for the year ending June 2019 when many local counters are offering investors growth in line with inflation at best.
“We believe there is more pressure to come for the consumer, and very few green shoots given SA’S recent GDP numbers and forecasts,” says Ward.
At the results presentation last week, Fairvest CEO Darren Wilder said he believes the company’s competitive advantage is that it is a simple business with a specific focus. “We let our space and we collect rentals. We don’t pay any fees or one-off profits as part of our distributions, so we don’t have to reset our base as some other companies are doing these days.”
Wilder stressed that management doesn’t intend to change its investment strategy. “Our focus will remain on retail properties that cater for the lower LSM market.
“And we are not going offshore or into the rest of Africa.”
Referring to Fairvest’s target market, Wilder said there’s no doubt that lower-income shoppers are more resilient in an economic downturn than middle- and higher-income consumers. “Our malls cater mostly for daily shoppers who typically spend R80 a visit on a basket of food.
“They have very little debt, are often recipients of social grants and don’t have to pay for housing, electricity or water.
“[Their] disposable income as a percentage of total earnings is much higher than that of middleand higher-income households, which are now under pressure.”
The listing of Libstar, an investment company that owns food brands, should serve as a cautionary tale to corporate financiers not to waste investors’ time and money with ill-researched offerings.
Too many companies are being given a chance to list on the JSE without being properly scrutinised, and Libstar is the latest of them, according to a number of seasoned stockbrokers and investment managers.
Sasfin’s David Shapiro says such dud listings used to take place especially in the late 1980s and early 1990s. SA investors are getting a reputation for being willing to list anything, he says, which is a cause for concern.
“Companies are supposed to operate for a number of years, build up a name and track record before they go public. We as investors want to know that we can trust management. However, we’ve seen many poor listings in SA in recent years,” Shapiro says.
“Perhaps only Dis-chem stands out over the past four years or so as an impressive listing. I just think there are too many inexperienced, cocky people loaded up with all sorts of qualifications, like CFAS and CAS, who are getting ahead of themselves.”
On the face of it, Libstar looked like an exciting company with strong growth prospects when it popped up earlier this year and said it wanted to list. It owns some well-known brands such as Denny, which supplies mushrooms and sauces; canned-fruit purveyor Goldcrest; Cape Herb and Spice; and Lancewood, the cheesemaker. Libstar also supplies about 250 product lines to food giant Woolworths.
It is clear now that the company was badly pitched at between R12.50 and R16 a share when it listed in May.
Shapiro says it looks as though the team that put the listing together just wanted to make a quick buck.
He says market-watchers who bought into the yarn without doing proper research were found out very quickly as the stock listed at the bottom end of the range.
Soon after the listing the group’s share price slumped to R9.70 as it warned that its financial results for the half-year to June would disappoint the market.
And that they did.
Despite overall revenue growing 14% to R4.5bn for the six months to end-june, boosted by the acquisitions of Sonnendal Dairies and Millennium Foods, net profit fell 38% to R62m from R100m.
Headline EPS just about halved to 12c from 23c and hopes of a dividend vanished.
The company’s share price has showed no signs of recovery. At 865c at the time of writing, the share had lost almost a third of its value since it listed on May 9.
Cratos Wealth portfolio manager Ron Klipin says he gave Libstar a miss because “everything was just short of details”.
“It looked like a listing of stuff that had been cobbled together. I may have seen the brands in stores but I didn’t know who owned them. Then when I saw that a private-equity group wanted to make a listing in order to disinvest, I became very wary,” he says.
Libstar’s initial public offering (IPO) was used by the unlisted entity’s owners — scandal-ridden private-equity group Abraaj, which owned 62%, and the Public Investment Corp, which had 17% prior to the company’s listing — to reduce their stakes.
“If a private-equity fund wants to dump its interest, it will do so at as high a price as possible and that put me off,” Klipin says.
Dubai-based Abraaj is being probed by