Mixing it up
Investment company Remgro has enjoyed huge success in “supersizing” its key investments. Think Rothmans (merged into British American Tobacco) and Mediclinic (now a global private hospital business with a primary listing in London).
Liquor group Distell, though, has been relatively slow in its expansionary efforts (at least compared with the old Sabmiller) — though it has built a formidable cider presence in the past 25 years. Remgro, following the dismantling of Capevin, will soon be large and in charge at Distell, heightening expectations of inspired deal making on the global stage.
Last week’s announcement about Distell acquiring a 26% stake in Best Global Brands (BGB) will support notions that it is looking for rapidly expanding African niches rather than paying stiff premiums for top international brands. BGB distributes the fastgrowing mainstream “Best” spirit brand across Africa — and feeds into Distell’s successes in big-volume markets such as cider, the ready-to-drink (RTD) segment and affordable wines such as 4th Street.
Importantly, the US$55M deal comes with an option to acquire the remaining 74% stake after 2019.
Best, the market leader in Angola, churned out 30m litres for the year to end-june 2017. This will mix well with Distell’s presence in select African markets (including Angola), and it’s not unreasonable for it to want to be the dominant player in the spirit, wine and RTD segments across the continent.
Potential synergies — in procurement, route-to-market and production — should benefit both companies. If Distell opts to snap up the remaining 74% stake in BGB, the price tag will be based on a 9.3 times multiple on the company’s last 12-month after-tax operating performance. BGB’S pro forma profit after tax to end-march 2016 was estimated at $33m — supporting comments that the transaction should be value (and earnings) accretive from the first year.
It might not be too long before African sales comprise more than 25% of Distell’s revenues — and at well-fortified margins.
Little information
Sabvest is one of my favourite investment companies, and a share I suspect still offers good value, judging by the interim numbers to end-june. The problem is that it gives away so little information about its 59.9% stake in specialised textile manufacturer SA Bias Industries, which has operations all over the globe. Though the listed portfolio is broken down into individual constituents, Sabvest frustratingly reports its quartet of unlisted holdings, worth about R1.5bn, as a single slab.
While it’s safe to assume the influential stakes in Classic Food Products, Sunspray Foods and Flexo Line Products don’t add up to a massive sum, it remains near impossible to tag an accurate value onto the core holding in SA Bias Industries.
Comment on the business is also scant, noting satisfactory results from the main operational components of SA Bias while observing that “trading in SA is challenging while offshore it remains satisfactory”.
For what it’s worth, interim cash flow from operations (after adjusting for noncash items) came in at about R43m, equating to about 95c/share and providing a reassuring underpin for the reported headline earnings of 120c/share. Sabvest’s ordinary and N-shares offer a tantalising discount of about 33% on what might well be a conservative net asset value of R37/share. I would not hesitate to add to my small holding — but it’s damned near impossible to pick up a decent parcel of shares.
Go Life, no life?
Nutraceutical company Go Life has noted that since completing a dual listing on the JSE’S Altx in November, its market capitalisation (then R385m at 50c) increased 25%, with the share price edging up to 60c. If I were a shareholder (I’m not), I’d be much more interested in more detailed comments on progress in the operating businesses than in movements in an illiquid share price. The figures in the income statement are hardly sprightly, and the balance sheet is mostly intangible.
It might not be too long before African sales comprise more than 25% of Distell’s revenues — and at wellfortified margins