Deep value in Wiese’s Tradehold
There may be plenty of upside to be had if the plan to separately list its SA industrial portfolio pans out
Christo Wiese-backed Tradehold, which has historically been a pure rand hedge play, has successfully reinvented itself over the past 2½ years. But it seems the market hasn’t bought into the simpler structure, in which 60% of its assets are now based in SA.
Previously, Tradehold’s portfolio was something of a hodgepodge. It spanned the financial services and real estate sectors, with the bulk of its assets being UK shopping centres. Most of those shopping centres were bought years ago through the various offshore business ventures of Wiese, who still chairs Tradehold and owns 49.7% of it.
But last year Tradehold unbundled its financial services division under a separate JSE- listing (Mettle Investments). Tradehold’s management, led by joint CEOs, SA-based Friedrich Esterhuyse and London-based Tim Vaughan, has also sold most of the company’s interests in Mozambique, Zambia and Botswana over the past 18 months. This included a number of retail properties and a housing estate developed for the US embassy in the Mozambican capital, Maputo.
More critically, Tradehold entered the SA property market for the first time in December 2016 by buying the Collins Group, a fourth-generation, family-owned developer which owned an R8.7bn portfolio of industrial and logistics properties. Overnight, this made Tradehold one of SA’s largest owners of warehouse and distribution centres — a smart move, considering it has been the best-performing subsector of the SA real estate market in recent times.
The Collins acquisition also means Tradehold is no longer a UK-focused company. Its SA-based industrial portfolio now accounts for close to 60% of total assets worth £859m, while the UK portfolio makes up only 30% of Tradehold’s property portfolio.
It still has some impressive UK properties. These include the Broad Street Mall (37,000m²) in Reading; the Bolton Marketplace (38,000m²) near Manchester; the Waverley Mall (7,939m²), strategically located next to the iconic Balmoral Hotel in Edinburgh; and a number of London office blocks. It owns 90% of serviced office operator The Boutique Workplace Company, which manages 34 flexible office sites across London.
Yet investors continue to shun Tradehold. The share price languishes at about R12.00 — far less than its tangible NAV of R23.50. That already steep discount to NAV increased last Friday, when the share price plunged 20% on a single day after Tradehold released results for the year to February.
It seemed a harsh reaction, especially since shareholders were rewarded with a 10% dividend increase. The jitters may partly be related to write-downs in the value of some of Tradehold’s UK and African assets, as well as ongoing concern over the weakness of the traditional bricks-and-mortar retail sector in the UK — which not only has e-commerce to worry about, but Brexit too.
Of course, as analysts point out, most of Tradehold’s shares are held by the Wiese and Collins families, who together own about 80%. This means that even small share trades can cause volatility in the price, which has gyrated between R10.00 and R12.80 since October.
Anchor Stockbrokers analyst Craig Smith says last week’s 20% drop in Tradehold’s price was on thin volumes. "The stock is relatively illiquid, so if anyone sells it tends to have a pronounced effect on the share price," he says.
But co-CEO Vaughan believes the share price is unjustifiably low. "I don’t think people understand our business. The general perception is still that we are primarily a UK mall owner despite the fact that only 50% of our UK portfolio is exposed to retail, the rest being offices," Vaughan tells the FM.
Instead, "the bulk of our assets now comprise high-quality industrial properties in SA".
Esterhuyse agrees. He says it appears the market doesn’t yet fully appreciate the quality of the Collins industrial portfolio, which has a minimal vacancy rate of below 2% and a lengthy weighted average lease expiry period of 7.2 years — all of which provides income certainty.
Still, more investors will have seen Tradehold on their radar following the R833m capital injection into the Collins Group by private consortium iGroup last month. iGroup is run by James Templeton, a veteran of the industry and the former CEO of JSE-listed Emira Property Fund. iGroup also owns a sizeable stake in Poland-focused EPP.
Templeton tells the FM that iGroup was looking for an SA-focused property investment, and the Collins portfolio was an obvious choice. "We wanted to gain access to the family’s skills and expertise in the industrial and logistics space — the sector to be in currently," he says.
Templeton says the Collins Group owns well-located assets leased to blue-chip tenants such as Nampak, Massmart, Unilever, Sasol and Pepkor. "We are also excited about the possibility of the Collins portfolio being listed as a separate entity in three years."
iGroup’s deal placed a value of R9.60 a share on the Collins portfolio alone, which again underscores how undervalued Tradehold is. Esterhuyse says: "Even though our UK and Namibian net assets are worth nearly R3.2bn, the market is effectively discounting the rest of our business, which doesn’t make sense."
There’s another reason why investors should notice: Esterhuyse confirms that the plan is to unbundle the Collins portfolio into a separate listed real estate investment trust in 2022 to create a specialist, SA-focused industrial offering. It’s a move which he believes will unlock massive value for shareholders.
Until then, the focus will remain on strengthening Tradehold’s balance sheet by selling the remaining £26.5m worth of assets in Mozambique, Zambia and Botswana. The proceeds will be used to pay down debt. Esterhuyse hopes to reduce the Collins Group’s loan-to-value (LTV) ratio from 63% to below 50% by the time the listing happens.
Fund managers welcome Tradehold’s focus on debt reduction, given rising concerns about gearing levels in the corporate sector.
Catalyst Fund Managers investment manager Paul Duncan says that while Tradehold appears to offer value at current share price levels, SA investors would like to see a further reduction in LTV ratios. "That will help buffer the company against any further headwinds from the UK in particular, which still faces Brexit-linked uncertainties and further potential write-downs in property valuations," he says.