Brimstone weighs spin-off option
Brimstone, the biggest shareholder of Sea Harvest, says it will consider all options, including spin-offs, at an appropriate time, to unlock value trapped in its investment holding structure. Its market cap is less than half the value of its assets.
Brimstone, the biggest shareholder of Sea Harvest, says it will consider all options, including spin-offs at an appropriate time, to unlock value trapped in its investment holding structure.
Founded in the mid-1990s as a Cape Town-focused investment house, Brimstone has grown into a R1.6bn outfit with assets ranging from substantial stakes in some of the country’s biggest names in the fishing industry and small BEE holdings to some blue chip companies.
But its market capitalisation is less than half the value of its assets, which include 54.2% of fishing group Sea Harvest and 25% of Oceana Group, both of which are collectively valued at R4.3bn.
CEO Mustaq Brey said much of this discount could be due to industry uncertainty about fishing rights, which are being allocated to several firms, including those Brimstone has stakes in. The fishing rights allocation process resumed in October 2020 and is expected to be concluded by the end of the year.
Brey said Brimstone would consider all options for unlocking value for shareholders, including potential unbundling, but this was inappropriate right now given the uncertainty over rights.
Intrinsic net asset value — which measures the value based on the future earnings a company is expected to generate for its investors — was little changed at R3.31bn, or R13.36 a share. The group’s ordinary shares were trading at a 49.6% discount at end-June, and have fallen almost 8% in the year to date.
Brey was speaking to Business Day after the company issued an earnings report for the six months to end-June that showed it had returned to profit and nearly halved its debt pile.
The group, which also has interests in health care and insurance, almost halved its net debt to R2.1bn after selling stakes in firms such as Life Healthcare, where it netted R900m.
Brimstone posted a R335.9m profit to end-June, from a loss of R129.6m previously, bolstered by R151.9m in savings on finance costs and a strong performance from some underlying investments.
Brey said while the benefits of cost-cutting where expected to persist in the group’s second half, head office staff numbers, and therefore costs, did fluctuate depending on what deals may be made. “Our guys are looking all the time, there is lots on offer,” he said. “But it is hard to get to the numbers that would be there without Covid-19.”
All the adjustments and qualifications related to the pandemic were still making due diligence difficult, he said.
Brimstone also holds 80% of Obsidian Health, which has a portfolio of medical devices, including cardiovascular surgery products such as valves, as well as diagnostic testing.
It contributed R12.5m in profit from R2.5m previously, reporting strong growth driven by a move into rapid Covid-19 antigen testing. Obsidian was further supported by sales of personal protective equipment, which helped offset pressure on products related to elective surgeries.
Brey cited Obsidian in making the point that Brimstone has some other “gems” other than just its fishing interests.
Brimstone also holds 5.1% of private higher education group Stadio, valued at R134.6m at period end, and 2.1% of property group Equites, worth R263.5m.
Brimstone’s shares closed 3.28% higher at R5.99, having fallen about 17% since the beginning of 2020.
THERE IS LOTS ON OFFER BUT IT IS HARD TO GET TO THE NUMBERS THAT WOULD BE THERE WITHOUT COVID-19
Mustaq Brey Brimstone CEO