WILL IT BE
AS GOOD AS
CHAPTER ONE?
Almost exactly four years ago, on
the 4th July 2011, Brait changed
its investment model and raised
R5.9 billion from shareholders,
as it transitioned from a private
equity manager into an investment
holding company.
It used the proceeds to acquire
34% of Pepkor and 49.9% of
Premier Foods.
time the proposed acquisitions of
majority stakes in Virgin Active and
UK retailer New Look signal the
start of second chapter, he says.
The question many shareholders
will be asking is: will the second
chapter be as profitable as the first?
For Brait executive director John
Gnodde, speaking to Moneyweb
from London, the answer is a
definitive yes. "Chapter one has
been good. But from a Brait
perspective we are excited
about chapter two. What created
the potential was investing in
businesses with good growth and
high cash conversion potential. We
bought our assets well in chapter 1
and believe we have bought even
better assets now."
Brait bought Pepkor for R4bn and
sold it for R30bn, effectively a 20x
enterprise multiple (enterprise
value/ebitda). To put that in
perspective, other SA retailers trade
on 12x enterprise multiple, which
investors believe is rich relative to
the market.
“Brait sold Pepkor on a rich
valuation and used the proceeds
to buy good businesses with better
than average growth profiles for
half the valuation,” says Lonwabo
Maqubela, head of research at
Perpetua Investment Managers.
“This was, I believe, an example of
good capital allocation.”
Further through these transactions
Brait has diversified its net asset
value (NAV) both geographically and
by business line. Pepkor accounted
for 60% of Brait’s valuation. Now
the NAV comprises Steinhoff at
20%, New Look 35%, Virgin Active
25%, Premier Food 10%, and the
others at 10%.
Brait acquired 90% of New Look for
£1.9bn (£780m + about £1bn debt)
at an EV/EBITDA multiple of 9x – a
significant discount to SA retailers.
New Look EBITDA grew at 13.8%
between 2012 and 2015 and is
better than all the South African
retailers with the exception of Mr
Price (18%) and Pepkor (ebitda
growth of 20% pa over the past five
This change in strategy has
delivered handsome rewards
for the investment team and
shareholders. Reported NAV per
share has grown from R16.50
on 1 April 2011 to R77.12 at 31
March 2015, reflecting a four year
CAGR of 47%.
In the same period the share price
rose from R18.61 to R83.50. The
company also entered the MSCI
Emerging Markets Index in August
last year and the JSE’s Top 40 Index
in June this year.
The sale of Pepkor for R30 billion
in March this year draws to a close
Brait’s first chapter since changing
its business model, writes company
chairman, Jabu Moleketi in the
latest annual report. At the same
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ISSUE 4 – JULY 2015
Figure 1: Source: Datastream