Tag Archives: holdco

Sabvest Capital – H1:21 – Delivering Growth & Offering Value

Share Code: SBP – Market Cap: R2.1bn – Dividend Yield: 0.45%

H1:21 Results: Businesses trading at-or-better than 2019 levels

  • Sabvest Capital’s Net Asset Value (NAV) per share grew by +24% y/y to 8240cps (H1:20 – 6624cps) to the end of 30 June 2021. We have updated this post-period and see NAV currently at closer to 8500cps (our estimate).
  • The Group doubled its interim dividend to 20cps (H1:21 – 10cps) as its balance sheet saw degearing and management has steadily continued buying back shares in the open market (which we consider value accretive at these levels).
  • Perhaps most importantly, management emphasises that at the date of publishing the results all the Group’s businesses are trading at-or-better than 2019 (and 2020) levels.

Thoughts: Upside to forward valuation, corporate actions

  • Multiples used to value the Group’s unlisted investments were flat or slightly lower than prior periods. This gives us comfort that NAV growth is earnings-based (i.e. good quality).
  • In Classic Foods (and, even Revix) case(s), it looks likely that valuations may be written upwards in the near-term. Added to this, the current trading of the underlying businesses implies higher forward valuations too, even if multiples remain flat.
  • Finally, management’s share buy-back & hints at a potential acquisition may drive further upside from here.

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

  • Updating the Group’s NAV for the latest market prices and taking out our fairly-valued “HoldCo discount” of 20% (previously: 19%), we arrive at defendable (post-discount) fair value for Sabvest Capital shares of 6826cps (previously: 6402cps) or +31% higher than the current share price. As noted, we see upside risk to this expression of fair value.
  • Rolling our fair value forward at our Cost of Equity, we see the Group’s 12m TP as 8000cps (previously: 7542cps) with an implied return of +54%.

Refer to our Initiation of Coverage for more background.

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

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

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%.