Here’s cheers to KWV

THERE WERE TIMES, over the past five years, when I thought the deep value investors in unlisted liquor producer KWV Holdings needed to sober up. The company traded at such a discount to its tangible net asset value (NAV) that it seemed sensible investors had long realised unlocking the underlying wealth would take an inordinate amount of time.

Indeed, controlling shareholder Hosken Consolidated Investments (HCI) reiterated at every AGM that KWV was focused on an operational turnaround and not about to sell off assets to release value. With the share at around 500c versus a (very) conservative tangible NAV of R18/share, the words of Jannie Mouton — whose PSG Group was an influential shareholder in KWV before HCI — kept echoing: “Never mind the NAV.”

But consumer brands doyen Viv Imerman’s offer to acquire KWV’s operational assets (for an effective R17/share) is a huge moment for patient deep value investors. Not only is there a generous buyout underpin, but KWV gets to keep its “heritage” assets — notably the Laborie property, the La Concorde head office and a valuable art collection.

One suspects KWV will declare a special dividend once the first tranche payment of the R1.15bn purchase price is paid. And I wouldn’t put it past HCI — via subsidiary Niveus (which houses the controlling stake in KWV) — to pitch an offer to minorities now that KWV’s tangible NAV is more easily quantified.

HCI’s decision to capitulate and hand over KWV’s operational assets is a decision, I’d imagine, that was not taken lightly. I hear Imerman first approached KWV almost a year ago, so it seems there quite extensive deliberations.

I think HCI has made the right decision. Niveus can now pursue its alternative gaming ambitions without the distraction of a liquor business struggling to eke out an acceptable return.

I know HCI executive Andre van der Veen put in a stout effort to secure sustainable profits at KWV in very tricky trading conditions. Under his leadership KWV threw off the last vestiges of its old co-operative culture. Brand value was also fortified by products winning awards.

My personal feeling, though, is that KWV made an error in trying to diversify away from brandy and wine by developing its own ready-to-drink range. With HCI’s deal-making skills on hand, it was surprising that KWV never did much merger and acquisition activity in the liquor sector. I suspect Imerman might do a bit more moving and shaking.

Just some house-keeping. More technical analysis appears to be the common denominator in feedback I received from readers. To supplement Garth McKenzie’s take, I have this month asked Karin Richards — one of the sharpest investment commentators on social media — to pen a guest column. Please let me know what you think.