Brait half year numbers, decent

Brait reported results for the six months to end September this morning. Brait. Registered in Malta as a European company. What? Well, Malta is tiny, but has a low corporate tax rate you see, that is why it is advantageous for companies to be "domiciled" there. Someone in my very extended family once told me that there was a connection of sorts with Malta. But you know how it goes, everyone tells everyone else that they have a connection, here check it out: Russian tradition of the Knights Hospitaller.


But Brait have nothing to do with Knights and others nobles who somehow plundered their way to titles, oops, I shouldn't have said that. Brait is a business that has transformed a lot. And when I mean a lot, I mean from a from caterpillar to butterfly. This used to be a company that talked about their private equity funds, and it was almost better to be in the funds as an investor, rather than a shareholder. In fact, if memory serves me right, the very smart management team used to have their money in the funds and not in the stock of the business. I think that has changed dramatically.


The 2012 annual report provides one with information of how the restructuring took place: "This has been a milestone year for the Group which saw a successful change in the business model from a leading traditional private equity fund manager to an investment holding company. ... During the year the Group acquired significant stakes in Pepkor, Premier Foods and Iceland Foods for a total of R6.4 billion."


Pepkor, as per their (Brait) NAV breakdown represents the 7.731 billion Rands of the 13.176 billion Rands worth of their investments, a 59 percent weighting. Premier Foods represents 10 percent of the investments, Iceland Foods 9 percent whilst the "Commercial loan to the investment team" is a whopping ten percent of the NAV too. That is basically the rump of the business, clothing and food retail to the middle to lower middle classes in South Africa, which represents 80 percent of their value. That translates to 23.01 Rands NAV, but the company seems to have rather low valuation metrics for Pepkor, Premier and Iceland Foods. That is why I think that the current share price trades at a premium to NAV, at 35 ZAR. The company reported a normalised earnings per share increase of nearly 15 percent to 240 cents. The dividend is modest.


The reason why I think that people low balled the valuations is simple, the new entity has a shareholder, Titan nominees which owns 13.65 percent of the company. That Titan nominees is none other than Christo Wiese. It is tough to find out how much of Pepkor he owns, outside of the Brait holding. See, that is a "problem" already for me. But hey, these guys have done exceptionally well. Well done to them! And still, the underlying assets and earnings still look like they trade at a discount to the rest of the retail sector, but you have to deal with the complicated structures here.