The trouble with Brait

It seems there’s no end to the decline in Brait’s share price, which is down almost 54% over the last year.

The trouble lies in its New Look investment, which scored a number of own goals in the last year.

Brait’s net asset value (Nav) per share for Q1 ending June 30 was R74.14 – 5.1% down versus March 31 2017’s reported Nav per share of R78.15. Brait’s trading at a 25% discount to Nav – well above the level considered acceptable for investment holding firms.

In the results to March, New Look’s Nav was put at R7 billion, 15% of the group’s total assets. One presumes New Look led the 5.1% decrease in Nav. This figure has fallen steadily since March 2016, when the company was valued at R34.8 billion.

This R7 billion is the carrying value of Brait’s investment in New Look (it’s debt). In March, Brait was forced to write the equity value of its investment in New Look down to zero.

It didn’t take long for the market to apply its own valuation, says Denker Capital’s Jan Meintjes. “At R55 you are paying zero for New Look and the other assets you are buying at a 10% additional discount. Iceland Foods, Virgin Active and Premier are good assets. That is why at these levels I think Brait offers fair value, with an option on a turnaround of New Look.”

Brait and New Look aren’t sitting back. New Look CEO Anders Kristiansen is standing down. Danny Barrasso, MD for the UK, was appointed interim CEO.

Meanwhile, it’s applying lessons learned in its Iceland turnaround, headhunting the best people, says Meintjes.

Structurally, high-street ladies fashion firms are under big pressure from rivals like Zara and Primark. Also, online retailers are taking market share.

“New Look is well placed from an online perspective with e-commerce sales that are just below 20% of total sales,” he says. However, with 600 stores, a few seasons of big fashion misses have seen them lose market share.