Sabvest grew its Net Asset Value (NAV) by +10.4% y/y to 11465cps (H1:23 10388cps) and maintained its interim dividend at 30cps (H1:22 – 30cps).
The Group is fully invested and, indeed, has several investment disposals in progress. With net debt at c.10% of gross assets, we expect realizations to be applied (somewhat) to degearing.
Management expects moderate growth in NAV per share for the full FY 23E period.
Note (below) how unlisted valuation multiples have remained flat over the period.
Sources: Sabvest, Iress, Profile Media, various company reports, & Blue Gem Research workings & assumptions; *Valuation performed by Masimong management predominantly based on Discounted Free Cash Flow methodology. **Average between subsidiaries’ multiples (4.5x and 6.0x).
Thoughts: More Nuanced Performances from Investees
While H1:23 was generally a tougher trading period for underlying businesses, particularly Apex, ARB and SA Bias all performed strongly and saw good growth in their earnings and, thus, resulting valuations.
Somewhat offsetting this, Halewood saw a cyclical adverse product mix and ITL continued to be buffeted by macro headwinds in the global apparel supply chain causing both to underperform. Both these businesses are good quality, and, in time, we expect these headwinds to abate, normal growth to continue and their respective contributions to Sabvest’s NAV to rise accordingly.
Valuation, 12m TP & Implied Return: 40% discount to NAV
Updating the Group’s NAV for the latest market prices we arrive at a defendable (post-discount) fair value for Sabvest’s shares of 10060cps (previously: 9227cps), which still includes a HoldCo c.13% discount against this NAV.
Rolling our post-discount fair value forward, we see the Group’s 12m TP as 11920cps (previously: 10906cps) with an implied return of +73%, excluding dividends.
Beyond the above numbers and implied returns, the fact is that the Group’s share price (6900cps) is currently at a large c.40% discount to what we estimate its current NAV is (11534cps). Given the Group’s track record, quality of NAV and prospects, we find this large discount strange.
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%.