Stellar hints at a new focus
Directors’ comments confirm investment company wants orderly reduction in its exposure to the industrial sector
Investment company Stellar Capital Partners — in which retail tycoon Christo Wiese holds an influential stake — has hinted at focusing on its financial services investments in future.
Directors’ comments with interim results released on Monday confirmed it was determined to reduce its exposure to the industrial sector in a "practical and organised process".
The company trades at a sizeable discount to its sum-of-the-parts (SOTP) value, which was stated as 112c a share at the end of 2017. A daily updated SOTP value on Stellar’s website shows a figure of 111c a share compared with a share price of 63c. Stellar holds a 57% stake in JSE-listed Torre Industrial and 49% stake in technology solutions group Tellumat as well as 100% of electronic security products manufacturer Amecor.
The industrial investment portfolio endured mixed fortunes in the six months to end December, with Torre’s value slipping from R435m in June 2017 to R293m.
Amecor, which was previously listed on the JSE, enjoyed another strong trading period, with the business forecasting ebitda (earnings before interest, taxation, depreciation and amortisation) of R65m for the year ending March (2017: R52.3m). This meant Stellar revised Amecor’s estimated sustainable profits, resulting in an increase in estimated fair value of the investment to R392m (2017: R360m).
Tellumat experienced depressed operating results in its defence and integrated solutions divisions. Consequently Stellar revised Tellumat’s estimated sustainable ebitda from R29m to R21m — reducing the estimated fair value to R121m from R178m at the end of June.
Anthony Clark, an analyst at Vunani Securities, said the market had long viewed Amecor and Torre as targets for interested parties. He said pricing might have been an issue in selling these investments, but the admission that the industrial assets were up for sale might indicate Stellar was now far more interested in selling these assets than in the past.
In terms of building a new-look portfolio, Stellar directors indicated that a medium-term objective was to hold noncontrolling stakes in underlying investments and to be invested in businesses demonstrating growth prospects with minimum medium-term return requirements. These investments would be scalable within their respective sectors.
Stellar holds a host of financial services interests. The largest is a 49% stake in asset management specialist Prescient, which is worth nearly R700m. Other financial services interests include full ownership of small fund manager Cadiz and Greenpoint Specialised Lending as well as a 60% holding in loans business Praxis.
Stellar said Prescient continued to perform well, with assets under management growing to R91.1bn (up from R82.9bn in June 2017) and assets under administration stretching to R268bn (R223bn).
Stellar CEO Peter van Zyl said the Stellar board’s focus remained keenly on the optimisation of its capital structure, which should be finalised by the end of June 2018.
Clark said that while the 42% discount on Stellar’s SOTP value looked attractive, the market would want to see that an unlocking of value could be attained. "Until then, I don’t see the share price going too far."