Joffe’s project is still well worth watching

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.