Brimstone eyes food sector amid Covid uncertainty
JSE-listed empowered investment holding company Brimstone Investment Corporation plans to keep its debt at manageable levels amid an uncertain Covid-19 environment but is still keen on making acquisitions, particularly in the food and healthcare sectors.
“If the environment doesn’t really change we will look at reducing debt further. If the market starts picking up we will probably become a bit more aggressive on the acquisition side,” said CEO Mustaq Brey this week.
Brimstone, which owns significant interests in JSE-listed fishing companies Oceana and Sea Harvest, will look to “go beyond fishing”, said Brey, especially into different parts of the food sector if it believes its “balance sheet and gearing levels are right”.
“But it has to be at the right price and right part of the cycle.”
What attracts the group to the food sector is the defensive nature of the industry.
“The one thing we have all done during the lockdown is carry on eating,” said Brey.
Brimstone, which has investments in the food, health-care, property, telecoms, media entertainment, fashion and insurance sectors, would also consider investing even more in Oceana and Sea Harvest. Brey said the pressure in recent times on the share prices of these two companies also presented an opportunity to buy more shares.
Brimstone owns a 25.01% stake in Oceana and a 54.2% stake in Sea Harvest. Oceana’s share price is down about 3.83% so far this year, as of the close on Friday, while Sea Harvest’s is down about 1.82% so far this year.
Brey said the share pressure on Sea Harvest and Oceana is due to a combination of the effects of the Covid-19 pandemic and the delay in the issuing of new fishing rights in SA, which were originally supposed to expire in December 2020. The government delayed the issuing of new ones until December 2021 so that it could investigate the complaints of fishing communities that they had been kept out of previous allocations.
“It [Covid-19 and the delay in rights allocation] is a double negative that has affected share prices. If we have fishing rights reasonably awarded to us I can foresee those two share prices correcting upwards by 20% or 25% in the next 18 months as fishing rights are sorted out.”
Small Talk Daily analyst Anthony Clark said there is talk that the allocation of rights could be “further delayed into 2022, which will further lead to sector unease”.
But Clark said once Oceana and Sea Harvest finally knowwhat their rights are, “then something has to give”.
He reiterated his view that “Brimstone will exit its stake in Oceana, settle any remaining debt and then use the cash to pump into Sea Harvest and allow Sea Harvest to become a much bigger, black-owned midcap food company”.
Clark said the JSE needs a black-owned mid-cap “food champion” and “Sea Harvest could be it”.
Sea Harvest already owns the Ladismith Cheese Company and there could be an opportunity for Brimstone to become the empowerment partner to either JSE-listed food groups Rhodes or Libstar, he said.
“Both [Rhodes and Libstar] have sizable private equity holders who may want to exit and both need BEE. Brimstone could fit the bill.”
Though Brimstone is selling out of its investment in Life Healthcare in six tranches for a total of R1.3bn, Brey said the group still plans to continue investing in the healthcare sector. He said Brimstone will be keeping its investment in medical equipment supplier Obsidian Health, of which Brimstone owns about 80%.
“We are very happy to carry on in Obsidian and we believe there will be more opportunities in the health-care sector again coming through — and not necessarily listed, it could be unlisted investments as well.”
Brey said there are small health-care companies without enough working capital which could need an investor such as Brimstone to come in and take them over.
“Don’t forget Life Healthcarewas unlisted when we bought into it, and we built it up and we brought it to the market in 2010. We could repeat that type of recipe again going forward.”
Brey said the group decided to exit Life Healthcare to realise profits as it had been invested in the company for 15 years, initially investing R225m. The more than 20% interest in Life Healthcare had paid dividends for the group.
“It’s been an absolute winner.”
He said the group is exiting Life Healthcare at a significant premium, selling its shares for between R26.75 and R27.73 each, compared to Life Healthcare’s current share price which closed at R21.08 on Friday.
It “would have been reckless for us not to take the profits”, he said, as it is important for Brimstone, whose investments, excluding Life Healthcare, total R5bn, to pay down debt during such uncertain times.
The sale of its stake in Life Healthcare and the sale of some shares in listed property group Equites and Phuthuma Nathi, MultiChoice’s broad-based black economic empowerment share scheme, would enable the group to halve debt from a high of R4bn to R2bn. This would give it a more manageable gearing ratio of under 40%.
JSE needs a blackowned mid-cap ‘food champion’ Analyst Anthony Clark