Tag Archives: JSE

Sabvest Capital – FY 23 Results – NAVigating a Challenging Period

Share Code: SBP – Market Cap: R2.7bn – Dividend Yield: 1.3%

FY 23 Results: Rare period of pressure

  • Sabvest saw its Net Asset Value (NAV) per share slip fractionally lower to 10936cps (FY 22: 11017cps) as headwinds of higher inflation, higher interest rates and higher raw materials costs coincided with logistics challenges across the businesses held in its portfolio.
  • Most of the Group’s businesses performed good-to-well, though ITL Group & Halewood continued to trade through difficult respective structural and cyclical headwinds.
  • Management expects to resume satisfactory growth in NAV per share in FY 24, & we tend to agree.

Thoughts: Today’s Underperformers = Tomorrow’s Upside

  • Over the last couple of years, ITL’s contribution to NAV has fallen from 20% to 10%, but the business (&, indeed, the entire global apparel sector) has restructured & could end up gaining from this period of disruption. Equity here is currently valued at zero but we suspect that this will not remain so & provides future upside optionality.
  • Likewise, Halewood’s current difficult trading period belies the value of the underlying that—in our opinion—management is valuing conservatively. As headwinds turn to tailwinds here, earnings should follow mix, & we see upside in this investment’s contribution to NAV too.
  • Finally, SA Bias is performing excellently & Apex, DNI, Valemount & Masimong all have healthy prospects.

Valuation, 12m TP & Implied Return: Wide discount to NAV

  • The share is currently trading at a c.37% discount to NAV.
  • Using our updated NAV (with the latest market prices) we arrive at a defendable (post-discount) fair value for Sabvest’s shares of 9817cps (previously: 10060cps), which still includes a HoldCo c.10% discount against this NAV.
  • Rolling our post-discount fair value forward, we see the Group’s 12m TP as 11675cps (previously: 11920cps) with an implied return of +69%.
  • See inside our report comparisons to some of the other JSE-listed HoldCo stocks.

Sabvest Capital: Breakdown of Group Net Asset Value (NAV)

Metrofile Holdings – H1:24 Results – Tougher than Expected Interim Period

Share Code: MFL – Market Cap: R1.1bn – PE: 8.5x – DY: 6.3%

H1:24 Results: Headwinds constrained revenues & hurt margins

  • Metrofile Holdings reported a much tougher H1:24 period than we had expected with several headwinds either constraining revenue growth or negatively impacting short-term margins.
  • Revenue grew +2% but this below inflationary pressures (labour costs increased +11%) and EBITDA decreased 4%.
  • Higher interest rates increased the financing burden and saw HEPS for H1:24 decline 13% to 13.0cps (H1:23 – 15.0cps).
  • In line with earnings, the dividend was lowered to 7cps (H1:23 – 9cps) and management bought back 1.5m shares in the market at a c.297cps VWAP.
  • The Group’s cash flow remained exceptionally strong (R160m of EBITDA converted into R143m of operating cash flow) and debt levels remained reasonable.

Our Thoughts: Strong recurring underpin to revenues & cash flows

  • Physical and digital subscription revenues make up 62% of Metrofile’s revenue, underpinning a strong base of recurring cash generation from which management continues to build out the Group’s digital strategy, this period being no exception.
  • On this digital strategy, IronTree, cloud & digital service revenue continue growing & we expect their contribution to Group revenue mix to grow (see Figures 2, 3 & 4 in this report).

Forecast, Valuation and Implied Return: Undervalued

  • We see Metrofile’s fair value as 390cps (previously: 423cps), implying an EV/EBITDA of 7.0x & a PE of 12.9x (comparing attractively to Iron Mountain’s current EV/EBITDA of 18.9x & PE of 129x).
  • Rolling our fair value forward, we arrive at a total return 12m TP of 456cps (previously: 500cps), implying a high c.78% return (including dividends) from these levels.
  • Our short-term forecasts were optimistic & have been lowered. Yet the fundamentals remain in place for Metrofile to defend its core business while it keeps investing in faster-growing, long-tail digital services businesses that are steadily transforming the Group. See Table 8 in the report (or below) for global comparisons.

Metrofile Holdings – FY 23 Results – Great Top-line Growth

Share Code: MFL – Market Cap: R1.3bn – PE: 9.3x – DY: 6.0%

FY 23 Results: Double-digit Organic Growth

  • Metrofile revenue grew per our forecasts at +16% y/y (+3% added via the consolidation of IronTree for the full period and, importantly, +13% of this growth was organic in nature) but EBITDA was slightly lighter than we expected at R345m (FY 22: R325m) as inflationary pressure, the full cost of the prior year’s established go-to-market team was carried and necessary IT upgrades were all carried in these results.
  • The Group bought back 10m shares, helping HEPS grow +5% y/y to 32.1cps (FY 22: 30.8cps) and the dividend was maintained at 18cps (FY 22: 18cps).

Our Thoughts: Two Large, Near-term Contract Wins Offer Upside

  • The Group’s MRM South Africa and MRM Middle East both won significant contracts during the period. While the South African one’s timing is hard to know (we have excluded it from our forecasts), the Middle Eastern contract should start generating revenue from the end of FY 24E (included in our forecasts from the start of FY 25E).
  • Note: These two contracts alone add c.+20% to Group annual revenues for the periods they occur, we cannot understate how significant they (and their timing) are to Metrofile’s next couple of financial years.

Forecast, Valuation and Implied Return: Inexpensive quality

  • We see Metrofile’s fair value as 423cps (previously: 426cps), implying an EV/EBITDA of 7.4x & a PE of 13.2x (comparing attractively to Iron Mountain’s current EV/EBITDA of 16.1x & PE of 47.8x).
  • Rolling our fair value forward, we arrive at a 12m TP of 500cps (previously: 496cps), implying an attractive c.65% return (including dividends) from these levels.
  • Given the fast growth in Digital Services over the period and the significant premium these businesses trade at in public markets, we are increasingly expecting some sort of inflection points in the coming years where Metrofile’s valuation starts to reflect the growing percentage of revenue coming from Digital Services.

Sabvest Capital – H1:23 Results – Growth Despite Tougher Period

Share Code: SBP – Market Cap: R2.8bn – Dividend Yield: 1.3%

H1:23 Results: Fully Invested

  • 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.

Renergen – FY 23 Results – R5.7bn EBITDA on a market cap of R2.7bn?

Share Code: REN – Market Cap: R2.7bn – PE: -94.1x – DY: 0.0%

FY 23 Results: Producing Cash Flows from Phase One

  • With Phase One’s LNG production started ramping up during FY 23, Renergen produced its first Liquid Natural Gas (LNG) revenues of R12.7m (FY 22: R2.6) with R11.1m coming from LNG and the balance from the now closed CNH pilot plant (FY 22: zero from LNG & R2.6m from CNG).
  • Our FY 23 cost assumptions were too heavy, and we expected a full year loss of -22.3cps while the Group only actually lost -19.86cps (FY 22: -27.73cps).

Material Updates: A Coming Year of Big Events…

  • Phase One will spend FY 24E ramping up production, & it pivotally shifts Renergen from developer to producer status.
  • The Nasdaq listing process has started with management expecting its conclusion towards the end of this year. A circular to was released detailing the issuance of equity in two tranches; the first being 67.5m shares upon Nasdaq IPO raising c.$150m with the remaining tranche being raised towards the end of the Phase Two build. This is less implied dilution than we forecast & we have adjusted our view and SOTPs for this new data.
  • Management also published a revealing “Phase Two Guidance Note” forecasting FY 27E estimated EBITDA of between R5.7bn and R6.2bn per annum. Given that Renergen’s entire market cap is currently only R2.7bn, R5.7bn EBITDA is significant!

Valuation: SOTPs & Peer Relatives Higher Than Share Price

  • Updating and refining our forecasts, we see Renergen’s current fair value at c.6400cps (previously: 6233cps) and 12m TP as a little over 7500cps (previously: 7347cps).
  • Updating the crude listed helium peer relatives (market cap/helium), Renergen remains discounted against this measure. This remains true even if we take Phase Two’s future equity raises into account and despite Renergen being more advanced than its peers in both proving and starting to produce from its resource.

Sabvest Capital – FY 22 Results – Exciting Prospects

Share Code: SBP – Market Cap: R3.2bn – Dividend Yield: 1.1%

FY 22 Results: Better than Expected

  • Sabvest Capital’s NAV grew 17.6% y/y to 11017cps beating our expectations, the Group’s HEPS was firm at 1591.2cps (FY 21: 1689.7cps) and management has materially lifted the dividend to 90cps (FY 21: 75cps).This was a busy period with a range of new investments from ARB Holdings, Halewood to Valemount Trading.
  • The Group’s investee companies executed various underlying investments from Apex buying into DRA Global to SA Bias’ Flowmax acquiring YG Prefab in the UK.

Thoughts: Exciting Portfolio Prospects

  • While ITL’s may be the only duller spot in Sabvest’s portfolio (longer-term, though, we are very optimistic about this group’s prospects), DNI-4PL is firing all cylinders, SA Bias is performing strongly, and Apex Partners is fast growing into a material investment for the Group.
  • ARB Holdings is benefitting from the boom in solar, Halewood and Valemount Trading both hold immense potential for profitable expansion from their positions in the RTD/beverage and pet industries respectively.

Valuation, 12m TP & Implied Return: Cheap & Growing

  • Updating the Group’s NAV for the latest market prices we arrive at a defendable (post-discount) fair value for Sabvest’s shares of 9227cps (previously: 8894cps), which still includes a HoldCo c.14.5% discount against this NAV.
  • Importantly, the underlying NAV appears to be conservatively valued and management’s track record for growth is well above average. These two factors combine favourably to form the Group’s investment appeal, particularly when offered at a discount (we estimate the share price currently offers a c.25% discount to NAV).
  • Rolling our post-discount fair value forward, we see the Group’s 12m TP as 10906cps (previously: 10511cps) with an implied return of +35%, excluding dividends.

Sabvest Capital – H1:22 Results – Better than Expected

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.

Sabvest Capital – FY 21 – Great Performance with More to Come

Share Code: SBP – Market Cap: R2.4bn – Dividend Yield: 0.6%

FY 21 Results: Strong NAV growth, large hike in dividend

  • Sabvest’s FY 21 Net Asset Value (NAV) per share grew by +26% y/y to 9371cps (FY 20: 7444cps), adding to the Group’s fantastic track record as it has compounded NAV per share (excluding dividends) at +16.9% CAGR for a decade & a half!
  • Updating this NAV (keeping unlisted valuations flat), we see the current share as trading at a c.37% discount. This is despite JSE-listed HoldCo’s average discount-to-NAV being c.30%, and despite most of these other HoldCo’s having a worse track record than Sabvest. Using this peer-average discount, Sabvest shares should be trading closer to 7000cps.
  • Sabvest hiked its dividend to 75cps (FY 20: 25cps) as its balance sheet remains comfortably capitalized.

Thoughts: “Quality” growth in NAV, more likely to come…

  • As most of Sabvest’s investments are unlisted (c.86% of NAV), it is important to emphasise that the growth in NAV is not due to rising valuation multiples (all valuation multiples are flat from FY 20). The growth in NAV was driven by earnings growth &, therefore, we consider it “quality growth”.
  • As investee companies are trading at-or-better than 2019 pre-COVID levels, we expect continuing NAV growth in FY 22E.

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 defendable (post-discount) fair value for Sabvest Capital shares of 7487cps (previously: 6826cps) or +19% higher than the current share price.
  • Rolling this fair value forward at our Cost of Equity, we see the Group’s 12m TP as 8825cps (previously: 8000cps) with an implied return of +40%.
  • All these measures exclude the potential upside from the ARB Holdings delisting, Apex’s Ascendis Medical deal & any Rand weakness going forward that will lift hard currency valuations.
  • Refer to our Initiation of Coverage for more background.

Metrofile Holdings – Tough Period but Digital is Growing

Share Code: MFL – Market Cap.: R1.5bn – PE: 10.5x – DY: 4.5%

H1:22 Results: Tough Period

  • Metrofile’s H1:22 period saw domestic riots & elections, the implementation of the POPIA, Kenyan regulatory pressures, COVID lockdowns & supply chains disruptions.
  • The Group’s revenue rose +4% y/y (driven by the Middle East and Digital Services), though margin pressure lowered Operating Profit -2% y/y.
  • Strong cash generation allowed the Group to degear further (despite acquiring IronTree during this period) & the combination of lower finance charges & a lower effective tax rate (attributable to the Middle East) saw HEPS grow +1% y/y.
  • Implementing a new dividend policy, management has hiked the interim dividend by +29% y/y.

Our Thoughts: H2:22 Recovery + Digital is Growing

  • Many of the headwinds in H1:22 should abate during H2:22E, thus we expect some upside in the coming full FY 22E results.
  • Already in Q2 management saw box volumes in South Africa recovering while H2:22E should also see a full six month’s consolidation from IronTree (it was only consolidated for a single month in H1:22).
  • Perhaps not obvious at first glance, but Digital Services now contributes 20% of the Group’s revenues. We are extremely bullish on developments in this space and expect Digital Services to be a growing vector in future results.

Forecast, Valuation and Implied Return: Margin of Safety

  • We see Metrofile’s fair value as 405cps (previously: 428cps), or c.20% higher than its current share price.
  • Importantly, our fair value of 405cps for Metrofile implies an EV/EBITDA of 7.1x & a PE of 12.7x, which compares attractively to Iron Mountain’s EV/EBITDA of 14.6x & PE of 31.1x.
  • In fact, when compared to Iron Mountain, Metrofile has the same-or-better returns & significantly less gearing.
  • Rolling the 405cps fair value forward, we arrive at a 12m TP of 472cps (previously: 497cps). This implies an attractive +41% return (including dividends) from these levels.

Sabvest Capital – New Investments & Strong Trading Update

Share Code: SBP – Market Cap: R2.4bn – Dividend Yield: 0.6%

New Investment: ARB Holdings Ltd

  • Masimong Electrical (49.9%-held by Sabvest & 50.1% by Masimong) has offered minority shareholders in ARB Holdings 800cps. Along with the Burke Family (62.9%-shareholding in ARB), the deal aims to take the electrical & lighting wholesaler private. The total consideration will be c.R697m, & Masimong and Sabvest have each committed R223.5m funding (Sabvest’s share is c.9.3% of its market cap & c.6.5% of published NAV).
  • Irrevocable undertakings to vote in favour of the deal have been received from 69.4% of eligible shareholders, thus, we believe that this deal’s successful outcome is quite likely.
  • Refer to our notes on ARB Holdings for detail on the Group.

New Investment: Apex Acquires Ascendis Medical

  • Sabvest’s 44.8%-held investment, Apex Partners, has acquired a stable of Ascendis Health medical devices businesses for R550m (less c.R200m catch-up capex & up to R25m excess rental). See the full announcement here.
  • Ascendis Medical’s FY 21 revenue was R983m but bottom-line expectations vary given Ascendis’ neglect of the businesses.

Trading Update: Growth in NAV Better than Expected

  • Sabvest expects its FY 21 Net Asset Value (NAV) to be more than +19%y/y (>8858cps) while also hiking its dividend >80%.

Valuation*, 12m TP* & Implied Return*: Awaiting FY 21 Results

  • We have left our fair value (6826cps*) & 12m TP (8000cps*) unchanged & will update these after the FY 21 results. Given the trading update, though, we expect to upgrade our views.
  • While we do not expect ARB Holdings to materially change Sabvest’s NAV in the short-term, in the long-term the Group is an excellent, cash-generative & well-positioned business that is likely to contribute positively to NAV growth. Likewise with Ascendis Medical’s optionality. Perhaps, more subtly, these new investments further entrench Sabvest as a unique listed entry-point into a portfolio of unlisted companies.
  • See H1:21 Results Note & our Initiation for more background.

* Under review until post-FY 21 results