Sabvest considers share issue in hunt for new investments
The company has a busy half year increasing stakes in listed and unlisted interests, but will issue shares only for a compelling opportunity
Sabvest, the investment company anchored on a 59% stake in SA Bias Industries, could consider issuing new shares to fund new opportunities.
In commentary with half-year results to end March that were released on Friday, CEO Chris Seabrooke stressed that issuing new shares to fund deal-making endeavours would only transpire if the value exchange in the capital allocation decision is compelling.
Sabvest’s ordinary and low-voting N shares are trading at a deep discount to the latest stated net asset value of R54.58/share. Market watchers have cited the lack of liquidity in the shares as a major drawback in building investor interest in Sabvest, which has been a strong performer in terms of capital growth and dividend flows over the past five years.
At the end of 2017 five shareholders — including the Seabrooke Family Trust and a nominee company linked to investor Ronnie Price — spoke for 95.6% of the ordinary shares and 81% of the N shares.
Aside from the option to issue shares as settlement for investments, Seabrooke said Sabvest was able to mobilise its surplus cash or realise its general and technology equity portfolios to fund new investments. He said the group also had debt capacity.
Sabvest endured a busy interim period with a slew of additional investments.
These included increasing its interests in unlisted companies Flexo Line Products to 47.5% and Sunspray Ingredients to 28% as well as acquiring 30% of Mandarin Industries (which owns 100% of the International Trimmings & Labels Group) for $33.6m (R398.5m).
Sabvest purchased 3.2-million shares in Brait for R128.5m (increasing its direct holding to 4-million shares), snapped up another 15-million shares in Metrofile Holdings for R52.8m (increasing the holding to 9.6%), acquired 200,000 shares in Net1 UEPS Technologies for R24.6m (increasing the holding to 250,000 shares) and accumulated 12-million shares in Rolfes for R38.8m (increasing its direct and indirect holdings in Rolfes to a 27.8% stake).
Seabrooke said Sabvest continued to focus on its rand hedge characteristics, with the majority of its asset base — directly and indirectly — continuing to be invested in foreign currency assets.
During the interim period Sabvest bought another 4.4-million shares in UK-listed Corero Network Security for R4.3m to increase its stake to 6.5%.
Big offshore move
The big offshore move came with an asset swap of R300m into dollars. This saw Sabvest invest R209m in a bespoke offshore technology portfolio, which comprises 16 large-cap technology companies and one technology fund.
Seabrooke said the value of the "asset swap" portfolio had stretched to R264m at the end of the interim period. Key holdings include Spotify Technology, Netflix, Paypal Holdings, Alibaba Group, Tencent Holdings, Alphabet, Amazon.com, Apple, Baidu, Facebook and Microsoft.
Sabvest also holds a general offshore portfolio worth about R130m, including portfolio positions in Apple, Fedex, Amazon.com, Facebook, LVMH Moet Hennessy, Visa, Tencent, Adidas, Alibaba Group, JPMorgan Chase, Alphabet and Anheuser-Busch InBev.
Sabvest’s interim performance gross income from operations and investments surged to R227m (previously R80m), thanks mainly to a R186m fair value adjustment. Dividends received, however, fell sharply to R15m (previously R64m) because Mandarin will not pay dividends until 2019 and SA Bias did not declare a final dividend for 2017 due to the substantial special dividend of R2.2bn declared at the end of 2017.
But Seabrooke said both companies were expected to pay two dividends a year from 2019. Sabvest’s interim dividend was hiked 23% to 32c/share.