Brait shares drop as New Look’s earnings decline
Brait’s share price continued its downward slide on Tuesday, falling 5% to close at R60.75, a 22% discount to the company’s net asset value, as subsidiary New Look’s earnings declined.
Brait said that its net asset value per share fell 5.1% between March and June, from R78.15 to R74.14. This follows a 42.6% slide over the year to March, caused by a precipitous drop in its valuation of UK retailer New Look.
The investment holdings company, which also owns Iceland Foods, Virgin Active and Premier Foods, kept valuation multiples on its underlying investments unchanged.
New Look’s adjusted operational earnings for the quarter to June declined 37% on the previous matching period to £27.2m. Revenue fell 4.4% to £338.7m on negative like-for-like sales in UK retail and a flat e-commerce result. The retailer had embedded a “buy-now, wear-now” culture across the business, CEO Anders Kristiansen said to bond investors. It had hired Paula Dumont López as its new chief creation officer from September. López joins New Look from Esprit, where she is senior vice-president and head of Esprit Women.
The bond market was concerned about the financial viability of New Look, with the price of its bonds weakening further on the first-quarter earnings update, said Renier de Bruyn, investment analyst at Sanlam Private Wealth. While New Look had enough cash to afford interest payments on its bonds, it would have to reduce capital expenditure if profitability did not improve, he said.
“Even if investors were to write the value of New Look down to zero, Brait would still trade at a discount to its net asset value, which should provide some comfort to shareholders.”
Iceland Foods, which struggled in a competitive environment two years ago, had achieved an impressive turnaround, he said. In the first quarter of 2018, the business grew revenue 9.3% on the previous period to £661.2m.