More GPI assets could go the way of Burger King
CEO Mohsin Tajbhai says Grand Parade Investments plans to narrow the gap between the value of its assets and share price
With the disposal of Burger King and Grand Foods Meat Plant under way, investment company Grand Parade Investments (GPI) could sell more assets in future as it wants to narrow the gap between the value of its assets and the share price, said CEO Mohsin Tajbhai.
Other than reducing the steep discount to GPI’s net asset value (NAV), the sale will see the company reduce its debt and pay shareholders a special dividend.
At the end of the six months to end-December, GPI was trading at a discount of between 35% and 45% to intrinsic NAV, which is the book value of the company’s assets. In the six months ended December 31, GPI’s NAV per share increased 1.83% to 445c per share.
“GPI has historically traded at a significant discount to the value of its underlying assets. In the past this discount was as much as 40%. Over the past two years management have implemented several initiatives that have narrowed the discount to from 40% to between 20% and 30%,” the company said.
Speaking at the release of GPI’s financial results for the six months ended December 31 2019, Tajbhai said “a controlled” sale of assets was an efficient way to “unlock” the discount. He said the sale of Burger King and the Grand Foods Meat Plant was the first step to completely eliminate the discount.
Other assets that the company could offload include its property business, GPI Properties. The wholly owned property holding company’s properties are leased to GPI companies such as Burger King and Grand Foods Meat Plant. He said the property business was valued at R200m.
GPI’s other significant assets include wholly owned catering business Mac Brothers and interests in SunWest (15.1%) and Worcester casino (15.1%). SunWest International owns the five-star luxury Table Bay Hotel in Cape Town.
In the six months, GPI’s revenue increased 19%, from R707m to R844m. Gross profit from continuing operations was up 21% to R405m. Net profit after tax increased from a net loss of R36.4m to R6.4m. Headline earnings increased from R16m to R44m.
Burger King, which the group intends to sell for R670m to private equity firm ECP Africa Fund, increased revenue by 27.5% from R494.6m in the prior period to R630.8m.
Grand Foods Meat Plant, which GPI will also sell to ECP Africa Fund for R27m, increased revenue by 17% to R95.4m “off the back of growth in Burger King as well as a higher demand from Spur restaurants”. The plant supplies frozen patties to Spur Corporation.
Tajbhai said Mac Brothers, which is one of SA’s largest catering equipment manufacturers in SA, took strain from the slowdown in the construction and manufacturing sectors, which contracted by 5.9% and 1.8% over the last quarter of 2019. That business’s revenue fell 21% to R95.4m.
He said the liquidation of struggling food businesses Dunkin Donuts and Baskin Robbins was almost complete. “All the outstanding claims have been submitted. The first liquidation account has been confirmed by the master of the high court and the liquidator will lodge the second and final liquidation and distribution account. The process is expected to be finalised by the end of June 2020.”