Time for a round?
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.