Anthony Clark

Fire and Brimstone

Western Cape empowerment investment company Brimstone has emerged as one of the rare BEE investment stocks that has been unsullied by drama or scandal.

It has consistently and studiously invested its sizable pot of investors’ money in selective, quality investments that are transparent and unstructured. Yet with a market cap of R2bn Brimstone continues to hide its light under a bushel.

But that light is slowly beginning to shine very brightly.

Brimstone built a portfolio value of more than R4bn with a basket of assets that included health care, foods, fishing, media, financial services and recent investments in tertiary education and property. However, with two classes of shares — “N” and “Ord’ shares — both fairly illiquid, Brimstone, like many other more salubrious empowered investment companies, trades at a high discount to NAV. That discount is now about 44% of intrinsic value.

It is an opportunity for the patient, as management is fully aware that this discount will attract activists — and perhaps, like Grand Parade Investments, some shareholder-prodding.

Still, Brimstone is hardly in the news.

Its affiliate, 58%-owned Sea Harvest, has a much higher profile due to its numerous deals in the past year. This is partly the reason why Brimstone is underrated — it is often outshone by other portfolio assets. Brimstone has no need for exposure or high-profile marketing; it quietly does its thing away from the spotlight — whereas many others want to attract attention, often with disastrous consequences.

However, Brimstone is now being noticed because of its decision to invest in the entity that is involved in the delisting of dairy business Clover Industries.

Clover is being bought out by a consortium for R25/share. The lead investor is Israel’s Central Bottling Company, which, through the Milco delisting vehicle, will control 60% of Clover. Brimstone will be the second-largest investor, with a 15% stake. Commercially the deal looks sound, and the buy-out price for Clover is at a healthy pre-cautionary premium.

But given Brimstone’s roots in the Muslim community, some rancour has emanated from a few quarters relating to Brimstone’s decision to co-invest with an Israeli company. The geopolitics and the threat of a boycott of Clover products if the deal is consummated with Brimstone as a minority shareholder has led to a reappraisal.

At the time I write this the matter is up in the air.

Should the Clover Industries investment be consummated or amended, the deal has interesting and strategic commercial aspects, as Brimstone’s fishing affiliate Sea Harvest acquired Ladismith Cheese for R527m in late 2018. Sea Harvest has been on an acquisition trail, spending more than R1.5bn on a slew of deals. Melding investments in Clover and Ladismith Cheese (worth R1.25bn) will help balance Brimstone’s foods portfolio, which is now heavily skewed towards the fishing sector.

I have long believed Brimstone wants to reinvent Sea Harvest as a wide-ranging foods business in SA with a strong empowerment angle. With the ability of Brimstone to use its balance sheet and connections to bulk-up its food interests. I see more deals coming.

There has been whispers of restructuring of Brimstone to unlock value. Could an option be to split the business in two?

The investment arm could be sold off to another wellcapitalised BEE entity, giving Brimstone shareholders a fat special dividend and leaving an enlarged and emboldened Sea Harvest to sail its own path.

For patient and valueorientated investors, Brimstone — its 930c share price representing a significant discount to its intrinsic NAV — is appealing.

It is an opportunity for the patient, as management is fully aware that this discount will attract activists