August | 2022 | Blue Gem Research

Share Code: SBP – Market Cap: R2.9bn – Dividend Yield: 1.0%

H1:22 Results: Better than expected

Sabvest’s Net Asset Value (NAV) grew +10.9% p/p and +26.1% y/y to 10388cps (FY 21: 9371cps) driven by strong performances almost across all its investments that beat our full-year estimates.
The Group concluded investments in ARB Holdings and Halewood International South Africa during the period.
Despite this investment activity, the Group received good dividend flows, remains relatively lowly geared and management has declared a +50% y/y growth in dividend to 30cps (H1:21 – 20cps).

Thoughts: H1:22 growth likely to continue in H2:22E

ARB Holdings and Halewood are currently being carried at cost. While we expect operational growth in ARB to carry this investment value upwards, Halewood’s investment price appears quite conservative, and we expect both operational and re-rating to lift this valuation going forward.
Likewise, DNI-4PL, Masimong & Apex are all growing quickly, ITL Holdings’ global group has recovered strongly and SA Bias’ Flowmax appears to be on the front foot for acquisitions.
Finally, coupled with Sabvest’s superb capital allocation, relatively lowly-geared centre and its ability to buy-back its own shares below NAV, and it is likely that the good growth rate in H1:22 carries comfortably into H2:22E (and beyond).

Valuation, 12m TP & Implied Return: Lots of value available

Updating the Group’s NAV for the latest market prices & taking out our present valued “HoldCo discount”, we arrive at a defendable (post-discount) fair value for Sabvest Capital shares of 8894cps (previously: 7487cps) or +22% higher than the current share price.
Rolling this fair value forward at our Cost of Equity, we see the Group’s 12m TP as 10511cps (previously: 8825cps) with an implied return of +44%.

Refer to our Initiation of Coverage for more background.

Share Code: REN – Market Cap: R4.6bn – PE: -124x – DY: 0.0%

Central Energy Fund: Due Diligence Successful, Fair Value Implied

Following Ivanhoe Mines’ option expiring (see our previous note), questions surfaced about the reason for this expiry &, indeed, whether it involved the quality of the Virginia Gas Project (VGP).
Concurrent to Ivanhoe’s deal, Renergen was fielding a due diligence (DD) by the Central Energy Fund (CEF) for a 10% stake in VGP for R1bn. This DD has successfully concluded and both parties are now seeking final approvals to complete the transaction.
This is an important event for at least three reasons:
1. The positive DD by CEF confirms the quality of the VGP,
2. Assuming final approvals are received, this injects R1bn of equity funding into the Phase II funding, &
3. This solidifies an arms-length R10bn valuation for VGP (i.e. if 10% is worth R1bn, 100% is worth R10bn).

Our Thoughts: Much Better Price + Less Dilution

Above, point (3) implies that REN’s 90% stake is worth R9bn or c.6660cps (= R9bn/135.1m shares) versus our previous fair value of 6337cps & the share’s current market price of 3460cps.
Ivanhoe’s option would have come in at a discount to the current market price (if exercised) &, thus, the CEF’s deal is a lot less dilutive for shareholders and ensures a much large proportion of the eventual VGP value likely accrues to existing shareholders.

Valuation and Implied Return: Unchanged

We are currently reassessing our valuation and model for REN and will publish this in due course.
Despite that & due to the CEF deal—assuming no deterioration in exchange rates, commodity prices or interest rates—we believe that the previously communicated valuation at least guides towards a floor value of the Group. Previously, we saw REN’s fair value as around 6337cps & 12m TP of about 7491cps.

Blue Gem Research