Two im­por­tant red flags

Finweek English Edition - - MARKETPLACE -

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.

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