Research archive for BAT

On Monday afternoon, Brait reported their interim numbers. All their investments have been under pressure over the last year, where managements' reported Net Asset Value (NAV) per share came down from R66 to R55. Their assets are Virgin Active, Premier Foods, Iceland foods and smaller assets which are remnants from Brait's private equity days. Then there is the disastrous New Look asset, which they still own but is valued at zero. Three years ago, their NAV was R123 per share, with New Look accounting for 45% of that. Below you can see how their NAV has performed over different time periods.

Yesterday Brait released their 6-month trading update which has been keenly awaited due to their poor performance over the last 18-months. Since January 2016, the stock is down 70%. In February, after management wrote-down the New Look asset by R10 billion to R8 billion, I said most of the pain from New Look had been felt. I was wrong. Management has now written off the remaining R8 billion, so that their carrying value of New Look sits at zero. Due to the further write-down, Brait's NAV now sits at R66.62 per share. A 36.6% decline since September 2016.

Whoa. Brait has been a disaster as an investment over the last 12 months. Yesterday the company suggested that it was largely to do with their revaluing of their fast retailing asset, New Look in the UK and that Brexit had a marked impact on the currency translation back to Rand. In fact, New Look was once 45 percent of the value of their portfolio, it is now 15 percent. There are two graphs worth noting from the presentation yesterday, firstly a reconciliation of the movement of the net asset value. Their net asset value is reflected in the internal valuations of all their assets, divided by the number of shares in issue (506 million shares in issue).

Tuesday morning we had an NAV update from Brait for the end of their 3Q. The markets knee jerk reaction was to sell the stock down 6% but then as people read further and adjusted expectations, the stock price recovered to actually finish the day up around 1%!

We have interim numbers out of Brait on Wednesday. These numbers were probably more highly anticipated than usual thanks to the fall out from Brexit and Brait having major assets in the UK. Given that Brait is an investment company, the figure that people want to see is the NAV number that management feel is a fair representation of the value of their assets.

This is not a company that you own directly, rather indirectly, a business called New Look reported a 26 week update for the period to end 24 September 2016. New Look of course are owned by Brait, one of the worst performers in the Vestact stable this year. The stock has been battered by a number of factors, obviously the currency turning tail in favour of a stronger Rand (which means that the Rand price is lower of the same UK asset). The UK Brexit vote is one of the reasons. And the negative perception of UK assets has in some instances been reinforced by some tough trading conditions, the consumer is being very cautious in that part of the world. The unknown long term implications of something that isn't done yet (triggering of article 50) is weighing on UK assets. That saga now involves the courts, the next step is the appeal in December.

Brait has been a stock that has sucked serious wind lately. And by lately, I mean in the last three months. Up until Brexit. And then basically everything changed from there, check out the share price taking a couple of legs down post the Brexit vote and the subsequent rerating of their UK assets. Of course those Pounds are worth less Rands, a reverse Rand hedge if you will, as the hedge is NOT working in your favour:

Brait, the investment holding company, released their Net Asset Value update for the first quarter of the financial year. The share price has taken a terrible beating lately as the impact of Brexit takes it's toll. NAV decreased by just over three percent for the quarter, largely due to the Rand. The release fleshes it out: "The impact of the UK referendum vote to leave the European Union resulted in the Pound weakening 7.5% against the Rand from ZAR21.21 at 31 March 2016 to ZAR19.62 at 30 June 2016."

We saw the full year numbers from Brait on Tuesday morning. This caps off another busy year for the investment company with the purchase of Virgin Active, New Look and upping their stake in Iceland Foods from 19% to 57%. Given that the company is an investment company the figure that matters the most for the year is the growth in Nett Asset Value (NAV), over the 12 month period management did not disappoint. NAV went from R77.12 a share to R136.27 a share, a more than "solid" 77% growth.

Brait, the investment holding company, released an NAV update for their third quarter to end December last week. New Look, the relatively new and huge investment for the company, represents 47 percent total assets. Their stake in Virgin Active represents 23 percent of the total assets of Brait. 13 percent is made up via Premier Foods, the local food business, whilst Icelandic Foods represents 7 percent of the total assets. Effectively this business is one quarter health and wellness, half fast fashion and the other quarter food processing and retailing. I guess whilst all businesses are 100 percent exposed to consumers, some are a little more sensitive to inflation and moves in interest rates.

Brait released their results last week, this was for their six months to end September. Byron went to the presentation, he was pretty impressed, the company brought all their company heads in an epic company presentation. The investment company has been exceptionally busy over the last year to year and a half, this period was especially busy. Having sold the Steinhoff shares, and other investments, having raised a lot of money in a convertible bond issuance, the company has proceeded to add to their Icelandic Food business, as well as bed down some of their recent big transactions. For a quick look at how many moving parts there have been over that time, here is a snapshot of their NAV analysis for 2016, as at the end of the six month period:

Brait announced on Friday that they had sold their stake in Steinhoff and that they had upped their stake in Iceland Foods. That was pretty quick, I actually lost 50 bucks to Michael, I would have thought they (Brait) would have held the Steinhoff stake into a Frankfurt listing and beyond into next year, just to get a PE unwind and lift quickly. Just a refresher, for their Pepkor stake, the 37 percent interest that Brait held, they got 15 billion Rand in cash and 200 million shares in Steinhoff. The shares have been sold for around 16 billion Dollars. About 80 Rand a share. They are going to use the funds to settle their 14.2 billion Rand obligations.

Whoa, what happened to Brait on Friday? The share price was slammed in early trade as the company announced a convertible bond offering, the terms themselves were announced in the closing auction of the market. The closing auction is around ten to five in the afternoon, the uncrossing price settles just after 5pm. This is when all the volumes on the buy and sell ends of the market match each other. Not only does volume dictate, more importantly, the price of the volume dictates where the share price will uncross in that last trade.

According to their website "Brait is an investment holding company focused on driving sustainable long-term growth and value creation in its investment portfolio of sizeable unlisted businesses operating in the broad consumer sector."

Brait are back in the headlines with another massive deal, Brait Acquisition Of A 90% Interest In New Look. They will pay GBP 780 million for a 90% stake, which they are buying from two private equity groups, the remaining 10% is held by management (great for incentives and aligning interests). At this mornings exchange rate that works out to R 14.55 billion, so not a small acquisition. It ranks as their second biggest investment after Steinhoff and R2.3 billion more than the recent deal Brait to acquire Virgin Active.