Tag Archives: analyst reports

Sabvest Capital – Initiation of Coverage – Superb Capital Allocator at Unjustified Discount

Share Code: SBP – Market Cap: R1.6bn – Discount-to-SOTP: 64%

Sabvest Capital – Initiation of CoverageDownload

Group & Portfolio Overview: Majority Unlisted Investments

  • Sabvest Capital offers a unique entry-point into a portfolio of majority unlisted investments that have demonstrated strong growth, dedicated management teams (often co-investors) and that are carried at reasonable valuations.
  • The Group’s three largest investments (all unlisted) are (1) DNI-4PL, a cash-generative last-mile telcos distribution group, (2) ITL Holdings, a global labelling & technology-enabled tagging business, & (3) SA Bias, an exporter of narrow textiles/strapping from South Africa and group offering process-critical fluid handling solutions in the United Kingdom.

Investment Case: Better than the Best (Fund Manager) & Cheaper

  • Management has grown Group NAV (+18.6% CAGR y/y for fifteen years, excluding dividends) faster than the best-of-the-best general equity fund managers across South Africa (even after including distributions) and management have done so at a lower cost-to-NAV than these leading unit trusts.
  • Finally, this performance is currently priced at a c.51% discount to NAV on the JSE (relative to our estimated fair discount of only c.19% and the peer-group average discount of 42% currently applied to listed HoldCo’s > R1bn market cap).
  • The key competitive advantages that have helped Sabvest generate this growth (permanent capital & alignment of interest/‘Partnership Principle’) remain intact and, thus, we see no non-macro factors why the Group could not continue performing as it has done in the past.

Valuation, 12m TP & Implied Return: Cheap Against All Measures

  • We have formed a view that the Group’s unlisted investments are reasonably valued. Importantly, most of them have seen trading recover strongly following the impact of COVID.
  • Furthermore, updating the Group’s NAV for the latest listed price, inserting post-period corporate actions and taking out our fairly-valued “HoldCo discount” of 19%, we arrive at defendable (post-discount) fair value for Sabvest Capital shares of 6402cps or +64% higher than the current share price.
  • Rolling this fair value forward at our Cost of Equity, we see the Group’s 12m TP as 7542cps with an implied return of +93%.
Sabvest Capital – Initiation of CoverageDownload

Accéntuate Ltd: Ground Floor and Positioned for Upside

Initiation of Coverage – Share Code: ACE – Market Cap: R94m – PE: 9.5x – DY: 0.0%

Download Accentuate Initiation of Coverage Here

Business Overview: A Group of attractive businesses

  • Floorworx is the most significant player in the South African resilient flooring market and stands to gain from the National Healthcare Insurance (NHI) driving hospital refurbishments and expansion. In the long term it should benefit from the eventual roll-out of the pent-up infrastructure spend in South Africa.
  • Safic is an industrial chemical business in the fast-growing chemicals market with strong linkage into and synergies with Floorworx.
  • Ion Exchange Safic is 40%-held, early-stage (but extremely promising) water treatment solutions business with key backing by its large Indian-listed parent, Ion Exchange India Ltd.
  • Accéntuate has de-risked its balance sheet, streamlined its various businesses and now begun to focus on growth. NHI spend should help near-term revenues, public sector infrastructure roll-out should drive medium-term revenues and Ion Exchange Safic offers long-term blue sky optionality.

Key Issues: Macro-economic uncertainty

  • Despite the promising businesses in Accéntuate’s stable, the Group’s prospects rely very much on the activity, timing and quantum of a recovery in the local construction and infrastructure markets. While the long-term prospects of these sectors remain positive, there remains significant short-term macro-economic uncertainty.

Forecast, Valuation and Implied Return: Appears very inexpensive

  • We have pegged our valuation to our segmentally-driven SOTP DCF model, implying that ACE has a fair value of 114cps. This would put the share on a comfortable 10.6x PE and also implies that the current share price of 85cps undervalues Accéntuate by c.35%.
  • Rolling forward our fair value, we arrive at a 12m TP of 132cps with an Exit PE of 11.0x, which is slightly elevated due to Ion Exchange Safic adding to our valuation but its operations not yet adding to the Group’s profits.
  • Our 12m TP implies an attractive c.56% return.
  • Finally, even if Ion Exchange Safic is excluded from our valuation (assumed to be of nil value), the share’s fair value still appears between 90cps to 100cps, thus lending some comfort to our view that the share is currently undervalued.

Download Accentuate Initiation of Coverage Here

What do you think of Accéntuate? Let us know…

See our methodology here and note our disclaimer here.

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