Buy and Build

Finweek English Edition - - Companies & Markets -

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.

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