Lots of free goodies on offer with these shares

Sabvest has long been well-regarded, but the lack of share liquidity precluded institutional shareholders from participating meaningfully in the business.

It has become a bit more prominent in the market in recent months. Trading liquidity was boosted when shares belonging to big player Ronnie Price were placed with new and existing investors.

It’s a start, and the share price has perked up. But Sabvest still does not enjoy the market patronage that is evident at other investment trusts. What still needs to change is for prime mover, major share- holder and CEO Chris Seabrooke to make a key structural alteration in dismantling the archaic (and unnecessary) N-share structure.

The sizeable differential in the trading price of the ordinary shares and the N-shares is likely to cause confusion. IM reckons this will be addressed sooner rather than later, with an increasing number of investors taking notice of Sabvest’s investment proposition.

At end-December Sabvest’s main value was stored in its unlisted investments: 59.9% in global textile specialist SA Bias Industries (reflected as worth R704m) and trimmings and labels company ITL Holdings (R730m). The combined value of SA Bias and ITL (remembering that Sabvest has scant debt) is worth over R30 a share.

Then there’s a small portfolio of listed investments: 4-million shares in Brait, 28-million shares in UK-listed internet security business Corero Network Security, 46.5-million shares in document storage group Metrofile Holdings, 300,000 shares in technology conglomerate Net1 UEPS Technologies, 27.5-million shares in chemicals group Rolfes Holdings and 10-million shares in emerging markets financing specialist Transaction Capital Limited. At the end of December these holdings were worth R567m — or R12.56 a share.

Recent share price movements (most notably the marked drops in the share prices of Metrofile and Corero) have, by IM’s calculations in mid-March, reduced the listed portfolio value to about R476m — equivalent to R10.60 a share.

Put crudely, the price of Sabvest’s N-shares offers investors the holdings in technology company DNI-4PL Contracts, Sunspray Food Ingredients, Classic Foods and Flexo Line Products as well as indirect holdings in Rolfes and Val- ue Capital Partners — for free.

Investors also get Sabvest’s offshore investment portfolio (R65m at end-December) and the tidy little net cash pile of about R80m at no cost.

Prudently, the group also repurchased 1,271 Sabvest ordinary shares and 3.5-million Sabvest N-shares for R121.7m. The shares held in treasury have been cancelled, which means roughly 40-million ordinary and N-shares remain in issue.

If we work off the new shares in issue then Sabvest probably holds a NAV of closer to R60 a share.

The full NAV picture is clouded by some post-yearend corporate activity. In the standout deal JAA increased its interest in DNI to 34.92% at end-January, partially funded by the issue of new JAA shares. This diluted Sabvest’s interest in JAA to 28.4% but increased its lookthrough interest in DNI to 9.92%.

In March Sabvest snagged a 10% interest in respected empowerment group Masimong Group Holdings — which holds 25% of Seriti Resources (which owns 90% of Seriti Coal), 49% of Lephalale Coal Mines and 18.1% of Mouton Holdings (which owns 100% of Mouton Citrus and 65% of Carmién Tea).

The offshore bond portfolio was sold off, and the $7.3m proceeds are held in cash.

It seems likely that Sabvest could take advantage of weak share prices — notably Metrofile, Brait and Corero — to increase its stakes in listed holdings.

IM expects further action in year ahead that will bolster growth and dividend prospects. With Sabvest’s N-shares offering a discount of more than 30% on a portfolio that is not easy for investors to replicate, IM recommends readers consider accumulating scrip.