Bal­anc­ing yield and cap­i­tal growth

Financial Mail - Investors Monthly - - Analysis - Marc Hasenfuss

Brim­stone In­vest­ment Corp was one of the first black em­pow­er­ment in­vest­ment com­pa­nies launched at the dawn of democ­racy in the mid-1990s.

It has en­dured, and now holds a well-di­ver­si­fied port­fo­lio of in­vest­ments with a gross value of more than R11bn.

In some ways, Brim­stone fol­lows the old Rem­brandt (now Rem­gro) model with its main in­vest­ments be­ing well man­aged, brand rich, cash­spin­ning and prof­itable.

The group also prides it­self on gen­er­ous div­i­dend pay­outs, aligned to its de­ter­mi­na­tion to sup­port its large com­mu­nity share­holder base.

Co-founders Fred Robert­son and Mus­taq Brey are still the prime movers, though a new gen­er­a­tion is com­ing through.

Robert­son and Brey must be acutely aware of the large dis­count the mar­ket is plac­ing on Brim­stone’s shares. At the end of De­cem­ber Brim­stone showed an in­trin­sic NAV of 1,615c a share — which, at the time of writ­ing, rep­re­sented a dis­count of close to 45%. This is a hec­tic dis­count for a counter that has con­sis­tently de­liv­ered div­i­dends, cre­ated enor­mous value and man­aged its in­vest­ments pru­dently.

What Brim­stone does lack is

an ob­vi­ous (or im­me­di­ate) value-un­lock­ing op­por­tu­nity. So there may be a per­cep­tion that the share price will con­tinue to trade at a deep dis­count and share price move­ments will be dic­tated by move­ments among its big­gest in­vest­ments — the stakes in JSE-listed fish­ing groups Sea Har­vest and Oceana Group. At the end of De­cem­ber, Sea Har­vest (26.6% of the in­trin­sic gross value, or IGV) and Oceana (23.8% of IGV) rep­re­sented a se­ri­ous chunk of Brim­stone’s in­trin­sic value. This will be­come even more mean­ing­ful when Brim­stone ac­quires another 8-mil­lion Oceana shares ahead of that com­pany’s planned un­bundling from Tiger Brands.

The other sig­nif­i­cant hold­ing is the 3.4% stake in pri­vate hos­pi­tals group Life Health­care, worth R1.3bn at the end of De­cem­ber, or 18.3% of IGV.

Brim­stone has made no bones about its de­ter­mi­na­tion to build a food plat­form around Sea Har­vest (which owns Ladi­smith Cheese) and Oceana (which has sub­stan­tial cold­stor­age in­ter­ests).

That might sug­gest that a “large mi­nor­ity” stake like Life may no longer be con­sid­ered strate­gic, de­spite the reli­able div­i­dend flows. In the past fi­nan­cial year Brim­stone sold 15.3-mil­lion Life shares to raise R409m. Any firm­ing in the Life share price may well trig­ger fur­ther share sales, or even a de­ci­sion to place the re­main­ing 3.4% stake. That could raise sub­stan­tial pro­ceeds, which could be mo­bilised to cull debt and pay a spe­cial div­i­dend.

In the mean­time there are good div­i­dends to look for­ward to. What is re­as­sur­ing is that the div­i­dend flows are di­verse. About R26m was col­lected from Oceana, R93m from Phuthuma Nathi (Mul­tiChoice) and R43m from prop­erty group Equites.

Brim­stone is for the longert­erm in­vestor that wants to bal­ance yield and cap­i­tal-growth re­quire­ments. From a value per­spec­tive, prospec­tive in­vestors are re­ally pay­ing for the stakes in Oceana and Sea Har­vest, and gain­ing ex­po­sure to coun­ters like Equites, Grindrod, Long4Life and Sta­dio for next to noth­ing.

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