Food for thought over list­ing

The owner of brands such as Denny and Gold­crest just wanted to make a quick buck, say an­a­lysts

Financial Mail - - MONEY&INVESTING - Alis­tair An­der­son an­der­

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

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