New Brait, good results.

Yesterday we had interim results for the six months ended 30 September 2011 from Brait, the private equity specialists (or should I say former private equity, you will see why later). For a more detailed description of what these guys do, here goes: "Brait is an international investment group that manages third-party capital committed by a combination of international and South African investors. Its business is the raising and management of investment funds classified as Alternative Assets. The current product set includes private equity, mezzanine debt funds and a range of hedge fund solutions." Get it? Looks quite complicated with lots of moving parts.

Let's look at the numbers. Firstly, to get a good perspective, let's look at what the share price has done. Just before the collapse it reached 3200c and then tumbled all the way down to 930c in March 2009 only to work its way back to 2800c in Jan this year. It's had a tough year so far, now trading at 1958c. We will look at that later though. Normalised headline earnings per share were up a whopping 161.3% to 209c per share. Immediately it should jump out that this company is trading at less than 5 times earnings.

This is where it gets complicated and this is for a company that is already very difficult to understand at the best of times. They did a massive rights issue this year. So big that shares in issue went from 119 million to 506 million. The company raised R6bn from shareholders which is 60% of its current market cap of R10bn. Why did they do this? CEO John Gnodde gives a good explanation in this video clip via ABN digital.

Basically they are changing their business. Historically 80% of the company used to be private equity where the money was raised, you guessed it, privately. Now they want to go bigger and raise money using public markets and try and replicate the same returns, just with bigger numbers. Of the R6bn, R5bn has already been allocated. They bought 34.9% of Pepkor, the guys who own PEP, Ackermans and Best or Less. This was huge. At current valuations their stake is worth R5.4bn. that is 52% of all their assets and why they have done so well for this half. We all know how well the retailers have done. The rest of the R5bn was spent on a 49.9% in Premier Foods, a similar company to a Pioneer Foods or Tiger Brands who have also been doing fairly well recently. This stake is now valued at just over R1bn. Do the math, they already have a capital appreciating of around R1bn from the initial R5bn invested.

Here is my opinion based on the fundamentals. To be honest I like it which may be a contradiction to my thoughts about a similar company, example Remgro. I like it purely as an entry to Pepkor who I believe will do well. Private equity and asset management have almost been deemed insignificant by the new business strategy. For a company like this you are putting a lot of faith in the management team. These guys have a good track record and a great reputation.