Two important red flags
The Brait results highlight two important points for me. First, the acquisition of New Look has been an absolute disaster. When Brait bought it just over a year ago, New Look was valued at just under R35bn in 2016, and is now valued at just over R7bn. The important lesson here is that even master dealers get it very wrong sometimes. We must never trust somebody just because they have a track record, as even the experts get it wrong at times. We need to always, always do our own research and make sure we’re happy with any deal and if not, walk away from the stock.
The second issue is Brait’s valuation metrics of the unlisted assets. The company has always used an earnings before interest, tax, debt and amortisation (ebitda) multiple to value these assets. For years the multiple being used was not only conservative, but it was also hardly ever changing. Now these multiples are seemingly consistently changing and while it is completely within the directors’ mandate to do so, it makes comparisons harder. I prefer a stable multiple that I could adjust if I felt it was warranted. The share itself is up only some 5% over three years and down 55% over the last year. For those wanting to buy, this is probably as good an opportunity as you’ll get, but be warned that Brait has a long road ahead of it with New Look and Virgin Active both very dependent on the UK economy.
The share itself is up only some 5% over three years and down 55% over the last year.