BUSINESS DAY PICK OF THE MONTH: SABVEST CAPITAL
Sabcap has used surplus cash to buy back its own shares at a material discount to NAV
The three largest assets in Sabcap as per its last available results are DNI-4PL (R864m), SA Bias Industries (R801m) and ITL Holdings (R588m).
DNI is a niche investment company in the retail, telecoms, distribution and technology sectors. SA Bias is an international business that is involved in the fabric sector via a range of specialised products as well as fluid handling in various products. ITL is involved in the global apparel labelling sector — all those care and instruction labels on clothing.
During Covid, SA Bias and ITL were harder hit than many other Sabcap businesses due to the disruption in retail spending and the logjam in global manufacturing and the supply chain. With a semblance of normality returning to business processes, these two units are expected to recover swiftly, adding not just NAV uplift but earning flow back to Sabcap. The companies make up 61% of the asset base.
Aside from the top three assets, Seabrooke and Sabcap have had an active 12 months.
One of the top portfolio sales has been half of Sabcap’s position in financial services business Transaction Capital — Sabcap sold 5-million shares, netting R191m.
Transaction Capital had a stellar 2021, rallying 76% as a series of astute deals, such as WeBuyCars, caught the market’s imagination.
Sabcap has also used surplus cash to buy back its own shares at a material discount to NAV, mostly the best allocation of excess cash unless a more enticing deal comes along. In the past year Sabcap has repurchased and cancelled 1.45-million shares. This ongoing buyback programme has whittled shares in issue down 24.4%.
Another notable recent deal has been Sabcap’s involvement with Masimong Group Holdings, the investment vehicle of BEE entrepreneur Mike Teke in which Sabcap owns 10%. Via a special purpose vehicle (SPV) Masimong and Sabcap made an acquisitive minority offer to delist electrical and lighting business ARB Holdings.
An 800c per share offer was made with the founding Burke family staying in as partners with the SPV. Sabcap’s stake in this well-run business will be 20.36% (R223.5m) and ARB will add a new leg to Sabcap’s growing industrial interests.
Via a 44.8% stake in Apex Partners — a vehicle founded and managed by former Torre Industries and Stellar Capital CEO Charles Pettit — Sabcap has an indirect interest in a range of industrial assets within Apex.
In January, Apex acquired the latent debt instruments of pharma and health-care business Ascendis. In a restructuring plan to extinguish debt and recapitalise Ascendis, Apex ends up with the medical devices business to add to its portfolio. Sabcap now has a 44.8% indirect stake in these recently acquired interests.
There has been much activity in Sabcap since a large block of stock owned by businessman Ronnie Price was placed in the market in 2018 at R34.60.
After that, Sabcap reorganised its capital structure and simplified the listed vehicle, with Seabrooke now fully directing investment strategy. A new sense of energy and freedom pervades the boardroom, which has led to a rise in NAV and new deal flow.
IM expects that 2022 will be another robust year for Sabcap. We forecast an uplift in SA Bias and ITL alongside possible revaluations of Masimong (R214m at last valuation), Apex (R241m) and perhaps even a tentative valuation for 15.5%-held crypto asset Revix, currently held in the books at zero. We have pencilled in NAV to end-2022 of R110 per share.
With a minimum NAV to December 2021 of R88.58 per share and a present share price of R61, the discount within Sabcap is 31%, a far cry from where it was 18 months ago. IM forecasts another year of solid NAV uplift that will underpin the share price and move it higher. IM has a price target of R76 (+25%). Buy.
