Brait’s net asset value to fall about 25%, soon after news of bailout
Share price falls more than 12% following trading update for the year ending March
Two months after angering some investors by committing additional resources to bail out an executive share ownership scheme, Brait said its net asset value (NAV) per share would fall by about a quarter for the year ended March.
The company, in which businessperson Christo Wiese is a large shareholder, said the fall in NAV per share to a range between R40.75 and R42.75 was a result of making adjustments as required by the methodology it used to value its three primary investments.
The announcement caused a sharp selloff in the share price, falling more than 12% to close at R20.45 per share, its worst performance in five months. Brait’s share price was trading at a discount of about 50% to its expected NAV.
“I think the market has been aware for some time the NAV was going to fall. But it’s still a disappointing number, and even at the lower end of the range they provided it means the company is trading at a discount to NAV of 50%. This is reflective of what the market thinks of management’s ability to deliver value, as well as holding companies being massively out of favour,” Brad Preston, head of Listed Investments at Mergence Investment Managers, said.
The adjustments to multiples used for valuing health and lifestyle operator Virgin Active, Premier Foods and Iceland Foods are based on the company’s ongoing benchmarking of peers for each of the three.
Brait’s core metric is the enterprise-ebitda (earnings before interest, tax, depreciation and amortisation) multiple, which has been lowered for all three investments. It applies this method as all three companies are privately held.
The multiple applied to Virgin Active has reduced slightly (-3.6%) while sharper decreases have been applied to that of Premier Foods (-11.3%) and Iceland Foods (-16.6%).
Over the past three-and-a-half years, Brait has lost 88% of its value on the JSE, plunging from a high of R170 in December 2015 to its current level of R20.43. Much of the destruction in value has been attributed by analysts to the disastrous acquisition of British high street retailer New Look. The company had to completely write off the value of its stake in the business.
In March, Brait announced it would spend more than R1.1bn to bail out executives as it unwound a structure that was implemented in 2011 to incentivise them.
Brait has been surprised by the reaction to the decision to honour the guarantee, as it has consistently provided for it in its financial statements over a period of years as the value of the collateral (Brait shares) fell in relation to the outstanding loan.
“The disclosures are there and people may agree or disagree, but they’ve got the ability to do their own calculations,” Brait chair Christopher Seabrooke told Business Day in March.