Brait 6 month numbers - hurt by weak pound

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.

At the close of the period the NAV number came in at R105.06, which is down 23% from the R136.27 NAV number reported for their full year numbers ending in March. A big part of the drop in value is due to the weaker Pound, going from R21.21 (exchange rate at full year reporting) to R17.82 (exchange rate at current 6 month numbers) coupled with a lower earnings multiple being given to the New Look asset by management. Here is a quick overview of the underlying businesses.

New Look is 30 % of NAV, which has the bulk of its business in the UK. Like for like sales in the UK were down 8.8% (ouch), compared to international sales being up 16.5% and 3rd party online sales up 21.5%. For the current period 17 new stores were opened in China and for the next 6 months another 40 stores are planned to be opened. Good news for the group is that UK retail sales out yesterday were much higher than expectations, up 7.6% YoY, hopefully some of that strength filters down to New Look sales.

Their asset that we are probably most familiar with here in RSA, is Virgin Active which contribute 26% to the NAV. The asset looks strong with Revenue up 6%, EBITDA up 12% but probably more important, EBITDA margins expanding 1 percentage point to 21.2%. Over the next 6 months, they plan to add 8 clubs globally, 6 in South Africa, 1 in Thailand and 1 in Singapore.

The Premier Foods asset had good EBITDA growth of 36% YoY for the period and contributes 22% to the NAV. Iceland Food which is 12% of NAV had a slight drop in like for like sales over the year but are investing heavily in e-tail, which should pay dividends in the future.

Remember that Brait are also in the process of moving their residency to the UK and will then list on the LSE probably in the first half of next year. Given that and their asset locations, what happens to the Pound (and UK in general) is going to have a large bearing on the share price performance. The risk in Brait lies in their rather large high yield debt sitting in each of their underlying businesses. With high leverage, when things are going well they go very well, but when there is a large interest bill due periodically a miss-step can lead to profits being wiped out very quickly.

You can't bet against the Brait management team and Christo Wiese in the background. All their assets have entrenched market shares in their respective markets and New Looks expansion into China looks to be going well. All in all, the share price is going to be thrown around by the Pound in the short term but over the longer term the group will become more international and the value of their underlying assets should grow.