Buy and Build
PRIVATE EQUITY players are often described as the “smart money”, taking the big risks when industries and companies are out of favour and dressing them up for successful listings or corporate activity.
With asset managers wary of many of the valuations of listed stocks, there’s increasing levels of interest in the unlisted market or those companies who need a “shot in the arm”. With this in mind, one stock that’s quietly gathering quite a lot of attention is JSElisted private equity giant Brait, with many investment managers predicting the stock is at the bottom of its investment cycle.
The company has more than R1bn listed in its two private equity funds, Brait III and IV and as a result much of its profitability is going to be driven by the performances of the assets inside these funds.
Chief executive Antony Ball has previously told investors that if they’re expecting quick profits from these funds, they should rein in expectations.
“Management has communicated to the market over the past few years to expect low profitability for the full year 2009 and full year 2010 due to the fund-tofund cycle gap, which potentially causes a lull in the value extraction between funds,” said Ball in Brait’s 2010 annual report.
One investment that has been hanging over Brait is its investment in JSE-listed coal contractor, Buildmax. Since buying into the company at around 135c/share, Brait has seen its investment slide down the hill to trade at around 30c, and investors were recently advised that Buildmax was going to be recapitalised to the tune of R150m with new shares being issued.
The two major underwriters of the rights issue are Brait and highly regarded asset management firm Coronation, which should give investors some confidence.
Brait is also cash flush after realising its interests in Net1 UEPS Technologies, Kelly Limited, Candy Tops and the recently listed Wilderness Holdings Limited, which led to net inflows of R174m in the financial year. The group has R1,4bn, R450m in redeemable preference shares and a R100m overdraft facility, with management describing it as “well capitalised”.
“The Group has emerged from a challenging two-year period in a strong and robust position, well primed for growth. Additionally, Brait is well placed to pursue a number of strategic initiatives that should provide a timely boost to its performance over the next few years,” concluded Ball.
It might not be fireworks for shareholders in Brait in the near-term, but the group is focused on its “buy and build” strategy, which should pay dividends in the long term.