Joffe’s project is still well worth watch­ing

Financial Mail - Investors Monthly - - Analysis - Petri Redel­inghuys

Long4Life came to the JSE in April 2017 and at the time of its list­ing cre­ated much ex­cite­ment in the SA in­vest­ment com­mu­nity.

Long4Life is es­sen­tially a ven­ture-cap­i­tal-style in­vest­ment hold­ing com­pany lead by for­mer Bid­vest founder and CEO Brian Joffe. Its list­ing and cap­i­tal rais­ing hinged on his record of gen­er­at­ing su­pe­rior re­turns for share­hold­ers.

Joffe clubbed in R100m of his own cap­i­tal to buy shares at 400c a share, while other in­sti­tu­tional in­vestors had to pay 500c a share to raise the tar­geted R2bn. It man­aged to raise R1.9bn and on the first day that the stock traded, it set­tled at 673c. Off to a fly­ing start! Since then the share has traded well be­low the first-day price.

Af­ter a slow start, due to reg­u­la­tory pro­cesses within the Com­pe­ti­tion Com­mis­sion, ac­qui­si­tions gained mo­men­tum. In July 2017 Long4Life bought The Sor­bet Group, a group of com­pa­nies that in­cludes health, beauty and groom­ing out­lets sit­u­ated across SA and with an emerg­ing foot­print in the UK.

In Au­gust 2017 it ac­quired Sports­mans Ware­house, Out­door Ware­house and Per­for­mance Brands by ac­quir­ing the then-listed Hold­sport in an eq­uity swap trans­ac­tion. Ini­tially the deal was spurned by mi­nor­ity share­hold­ers in Hold­sport, but in the end the ac­qui­si­tion was made.

Also in Au­gust 2017, Long4Life ac­quired Inhle Bev­er­ages, a co-pack­ing man­u­fac­turer ded­i­cated to the pro­duc­tion of bev­er­ages. It spe­cialises in the bot­tling of car­bon­ated soft drinks, en­ergy drinks and nat­u­ral min­eral wa­ter.

In March 2018 there was the ac­qui­si­tion of Chill Bev­er­ages, a West­ern Cape-based packer and dis­trib­u­tor of bev­er­ages, which owns a port­fo­lio of brands, in­clud­ing Score En­ergy and Fitch & Leedes. In April 2018 Long4Life ac­quired shoe-maker Veld­skoen.

Long4Life has clearly been stick­ing to its man­date to make qual­ity ac­qui­si­tions within the leisure and life­style in­dus­tries.

In June 2018 it an­nounced that it in­tended buy­ing a re­tailer, Rage, for a pro­posed R3.9bn. In Au­gust it re­vealed that “by mu­tual con­sent” it would no longer be mak­ing the deal.

Even though some deals have slipped through the cracks, Long4Life is de­ter­mined to make ac­qui­si­tions and take eq­uity in­ter­ests in busi­nesses with a track record of suc­cess and strong cash­flow gen­er­a­tion. They should own mar­ket-lead­ing brands, be con­sid­ered cap­i­tal-light, have at­trac­tive growth prospects, op­por­tu­ni­ties to con­sol­i­date their re­spec­tive mar­kets, have es­tab­lished mar­ket po­si­tions and have ex­pe­ri­enced and en­tre­pre­neur­ial man­age­ment.

Re­cently, in an interview on Busi­ness Day TV, Joffe said Long4life was con­sid­er­ing ac­qui­si­tions of com­pa­nies that are un­der­per­form­ing. In essence, Long4Life wants to buy into rev­enue streams and holds no real fo­cus on any par­tic­u­lar as­set types. As long as the com­pa­nies have great prospects and can be rel­a­tively eas­ily stream­lined, fit in with the de­cen­tralised na­ture of the Long4Life man­age­ment style and fall within the “life­style” seg­ment of the mar­ket, an ac­qui­si­tion can be con­sid­ered on its own merit.

With a mar­ket cap­i­tal­i­sa­tion of R3.9bn and an earn­ings mul­ti­ple of 27.5, Long4Life is rel­a­tively ex­pen­sive. This is hard to get your head around when you con­sider that the share is down over 21% over the past year and has a re­turn on eq­uity of just over 4%.

You would imag­ine that the share has room for fur­ther down­side. In its most re­cent trad­ing state­ment the com­pany said it was ex­pect­ing earn­ings per share and head­line earn­ings per share to be be­tween 42% and 61% higher on the back of the ac­qui­si­tions it has made. But the mar­ket was dis­ap­pointed and the share’s per­for­mance since has been poor.

Given SA’s cur­rent eco­nomic back­drop, one can ex­pect more trou­bled times and lower than ex­pected earn­ings for this stock. That said, there are still op­por­tu­ni­ties for Long4Life and Joffe is de­ter­mined to find valu­able ac­qui­si­tions. Though Long4Life is not yet the shin­ing star it hopes to be, it might just need some more time be­fore the fire re­ally ig­nites.

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