Time for a round?

Finweek English Edition - - Companies & Markets - MARC HASENFUSS

KWV IN­VEST­MENTS (not to be con­fused with un­listed KWV Ltd) is a pyra­mid hold­ing com­pany that cur­rently of­fers in­vestors a cheaper way of buy­ing Dis­tell, the Stel­len­bosch-based liquor pro­ducer. KWV In­vest­ments’ sole as­set is a 29,38% stake in Dis­tell, which – at the time of writ­ing – held a mar­ket cap­i­tal­i­sa­tion of just more than R9bn. That would mean KWV’s hold­ing should be worth around R3bn. But KWV In­vest­ments’ mar­ket cap cur­rently stands at R2,5bn, which means the share is trad­ing at roughly a 15% dis­count to its hold­ing in Dis­tell.

In the year to end-June 2007 the earn­ings flow from Dis­tell to KWV In­vest­ments was 591c/share, which puts KWV on a fairly un­de­mand­ing his­toric earn­ings mul­ti­ple of 10 times. Con­sid­er­ing the in­terim (to endDe­cem­ber 2007) do­na­tion from Dis­tell was al­ready 384c/share then KWV In­vest­ments’ for­ward earn­ings mul­ti­ple is rather mod­est.

While Fin­week reck­ons a 15% dis­count on one of SA’s best known wine and spir­its man­u­fac­tur­ers should ap­peal to value-seek­ing in­vestors, there’s also an en­tic­ing yield for in­come in­clined in­vestors. KWV In­vest­ments cur­rently trades on a his­toric yield of around 4,5%. The in­terim pay­out for the half-year to end-De­cem­ber 2007 was 144c, which sug­gests a full-year pay­out – even if Dis­tell feels a squeeze in con­sumer spend­ing – should top the 300c/share level. That puts KWV on a rather at­trac­tive 5% div­i­dend yield.

Un­der­stand­ably, both Dis­tell’s and KWV’s share prices have drib­bled down over the past few months as ex­pec­ta­tion of a slow­down in con­sumer spend­ing grew. In May this year KWV was trad­ing at 8000c.

But Dis­tell is a well-man­aged and brands-rich busi­ness with mar­gin en­hanc­ing syn­er­gies from the merger be­tween SFW and Dis­tillers Cor­po­ra­tion. With grow­ing op­por­tu­ni­ties in emerg­ing mar­kets, Dis­tell – and, by as­so­ci­a­tion, KWV In­vest­ments – should con­tinue to per­form ro­bustly. An added at­trac­tion at KWV In­vest­ments is the pos­si­bil­ity – in years to come – for the ar­chaic pyra­mid struc­ture to be dis­man­tled, a de­vel­op­ment that would be value en­hanc­ing for share­hold­ers.


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