Wiese’s magic fails to do it for Brait’s shaky shares

CHRISTO Wiese’s business acumen hasn’t managed to rub off on Brait’s share price, which has plunged 61% since peaking in April last year.

This week the share tumbled 9% to R59.01 after the company released its results, but the stock recovered to end the week marginally firmer.

Wiese, who has a 35% stake in the company, is hitching his hopes on China and Australia to save the group after Brait’s investments in the UK did not perform very well.

Brait increased its exposure to the UK in 2015 when it snapped up Virgin Active and clothing retailer New Look. But Brexit, which forced the group to abandon plans to move its head office to the UK, made things difficult. Weak retail sales, coupled with low levels of economic activity in South Africa, have also become a drag for the group.

The group this week reported a R15.9-billion loss for the year to end-March 2017.

This can mostly be attributed to poor performance in Brait’s primary markets, South Africa and the UK.

The situation in the UK is not improving. On Thursday data showed retail sales plunged by 1.2% — more than the 0.8% expected — for May. This was the second decline in three months as an uptick in inflation curbed consumer spending.

South Africa’s retail sector showed an increase of 1.5% in sales in April despite data suggesting the country had entered a recession in the first quarter.

Wiese said he was not sure how long the weak consumer environment would last. New Look was not alone, he said; retailers across the board in the UK were experiencing tough conditions.

“The company is doing a lot of things to mitigate a further loss. Where you can’t change the conditions, you can only adapt to them and make sure you do the right things,” Wiese added.

New Look, which has 592 stores in the UK, accounts for 15% of Brait’s current investments. Brait is now expanding the number of its stores in the Asia Pacific region to bolster its business. New Look, which first opened a store in China in 2014, plans to open between 50 and 100 New Look stores this year, according to an analyst.

While Virgin Active closed 37 UK clubs in 2016 and 14 UK racquet clubs were sold in 2017, it opened 26 new clubs across South Africa and the Asia Pacific region in 2016.

Wiese said the consumer market in Asia and Australia was definitely better off.

He is targeting this market in the hope that the slump in consumer spending elsewhere in the world will not spread to this region.

“We will do whatever is required and whatever makes sense to drive our top line. Australia and China did not have a Brexit vote,” he said.

Wiese suggested, though, that Brexit did not necessarily mean the UK retail market would remain subdued throughout the process of exiting the EU, but it would have some effect.

Steven Schultz, head of investments and savings marketing at Momentum, said Brait was pivoting its geographic earnings exposure towards regions that were experiencing higher levels of economic growth. But the issue for Brait was that it was not alone in its ambition to expand into highergrowth regions.

“They are likely to encounter formidable competition in establishing themselves as a dominant player in these increasingly sought-after growth markets,” said Schultz.

He added: “It’s difficult to accurately predict future trading conditions until we acquire further political and economic clarity in both regions.”

An analyst who cannot be named said New Look had a base in Asia of only about 120 stores. It could afford to expand because it was so small.

Stores in China were doing reasonably well, so New Look could continue opening stores there, he said. “It’s a growth area for them.”

The game is not completely lost in the UK. If New Look fixed its merchandising it would not have to wait for Brexit talks to be completed to see a turnaround. But it is not only Brexit that is stifling New Look, as many of its competitors have not done as badly. Another issue for Brait is New Look’s debt book. The net debt of New Look is eight times more than earnings, according to the group’s annual report.

“They can buck the price. They are losing market share at the moment. They can get a great deal of the market share that is out there if the product and the pricing were right,” the analyst said.