Libstar: food for thought over listing
The owner of brands such as Denny and Goldcrest just wanted to make a quick buck, say analysts
The listing of Libstar, an investment company that owns food brands, should serve as a cautionary tale to corporate financiers not to waste investors’ time and money with ill-researched offerings.
Too many companies are being given a chance to list on the JSE without being properly scrutinised, and Libstar is the latest of them, according to a number of seasoned stockbrokers and investment managers.
Sasfin’s David Shapiro says such dud listings used to take place especially in the late 1980s and early 1990s. SA investors are getting a reputation for being willing to list anything, he says, which is a cause for concern.
"Companies are supposed to operate for a number of years, build up a name and track record before they go public. We as investors want to know that we can trust management. However, we’ve seen many poor listings in SA in recent years," Shapiro says.
"Perhaps only Dis-Chem stands out over the past four years or so as an impressive listing. I just think there are too many inexperienced, cocky people loaded up with all sorts of qualifications, like CFAs and CAs, who are getting ahead of themselves."
On the face of it, Libstar looked like an exciting company with strong growth prospects when it popped up earlier this year and said it wanted to list. It owns some well-known brands such as Denny, which supplies mushrooms and sauces; canned-fruit purveyor Goldcrest; Cape Herb and Spice; and Lancewood, the cheesemaker. Libstar also supplies about 250 product lines to food giant Woolworths.
It is clear now that the company was badly pitched at between R12.50 and R16 a share when it listed in May.
Shapiro says it looks as though the team that put the listing together just wanted to make a quick buck.
He says market-watchers who bought into the yarn without doing proper research were found out very quickly as the stock listed at the bottom end of the range.
Soon after the listing the group’s share price slumped to R9.70 as it warned that its financial results for the half-year to June would disappoint the market.
And that they did.
Despite overall revenue growing 14% to R4.5bn for the six months to end-June, boosted by the acquisitions of Sonnendal Dairies and Millennium Foods, net profit fell 38% to R62m from R100m.
Headline EPS just about halved to 12c from 23c and hopes of a dividend vanished.
The company’s share price has showed no signs of recovery. At 865c at the time of writing, the share had lost almost a third of its value since it listed on May 9.
Cratos Wealth portfolio manager Ron Klipin says he gave Libstar a miss because "everything was just short of details".
"It looked like a listing of stuff that had been cobbled together. I may have seen the brands in stores but I didn’t know who owned them. Then when I saw that a private-equity group wanted to make a listing in order to disinvest, I became very wary," he says.
Libstar’s initial public offering (IPO) was used by the unlisted entity’s owners — scandal-ridden private-equity group Abraaj, which owned 62%, and the Public Investment Corp, which had 17% prior to the company’s listing — to reduce their stakes.
"If a private-equity fund wants to dump its interest, it will do so at as high a price as possible and that put me off," Klipin says.
Dubai-based Abraaj is being probed by regulators over the mismanagement of funds.
Shapiro questions how no-one attached to the listing foresaw Libstar’s disastrous start.
"I want to know why it chose to go public if it knew there were so many issues that would hurt it," he says.
"Libstar brought out results which were accompanied by a litany of excuses. Things could improve over time but it’s damaged its credibility from the get-go."
There were reasons, according to Libstar, for its rather shocking maiden results, including an oversupply of mushrooms, a six-week strike at Dickon Hall Foods that cost it about R63m in revenue, and a loss of R16m in sales from commissioning bugs at its Montagu factory.
Libstar CEO Andries van Rensburg says the company’s results were still positive for investors, and he expects the business to gather momentum in the second half of the year.
Libstar’s earnings are typically weighted 60% towards the second half of the year, which includes the festive season, he says.
He says there are growth opportunities across Libstar driven by several earnings-enhancing projects and new products.
Libstar will try to serve wealthier customers than it has done previously and will offer more expensive meals, Van Rensburg says.
It’s fair to say that Libstar needs to justify its listing. For now, though, market spectators are wondering if it should have taken a leaf from Consol’s book — the glass-packaging manufacturer called off its listing earlier this year.
Consol said challenging market conditions meant it would not be able to meet its valuation objectives through the listing and its plan to raise R3bn through an IPO was abandoned.
In relation to Libstar’s listing, Standard Bank and JPMorgan were appointed as joint global co-ordinators and joint bookrunners. Standard Bank was appointed as JSE sponsor to Libstar.
Standard Bank and JPMorgan have declined to comment.