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 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.
Astoria reported Net Asset Value of $0.748ps (FY 22: $0.827ps) or R14.08ps (FY 22: R14.06ps) with growth in Outdoor Investment Holdings (OIH) offset by lower RACP (i.e. Goldrush) & Leatt Corp share prices. A weaker Rand offset this in the Rand-based NAV but detracted against the USD-based NAV.
Unlisted valuations remain conservative with multiples unchanged.
Importantly—given its 48% of NAV—OIH is trading well, growing both footprint and store-level trading density.
Broadly, underlying businesses are performing &, even those facing headwinds, are trading resiliently and offer upside the moment the broader economy/ies improve.
Along with existing businesses growing their profits, other potential future fair value moves include both the Family Pet Centre (FPC) and Vehicle Care Group’s (VCG) refined business models showing success. Likewise, Trans Hex Marine’s historic cost should be fairly valued in future results.
During H1:23, Astoria paid back some of its investment-level debt (we expect this to continue). This adds to NAV & lowers financial risk while freeing capacity to regear for another acquisition (see the cautionary noted below).
Valuation, 12m TP & Implied Return: Under Cautionary…
Updating Astoria’s NAV to current prices, the share price is trading at a c.24% discount to current NAV (Previously: 34%).
If we take out our calculated “HoldCo discount” of c.14.5% (Previously: 14.0%) from this NAV, we arrive at a fair value for Astoria’s shares of c.1213cps (Previously: 1192cps) or c.11% higher than the current share price.
Rolling this fair value forward at our Cost of Equity, we arrive at a 12m TP of c.1440cps (Previously: 1422cps) that implies a potential return of c.33% from the current share price.
Note: The share is currently trading under a cautionary announcement due to a potential acquisition.
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’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.
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.
Renergen’s revenue was flat at R1.2m and the Group reported a loss of -19.31cps (H1:21 -21.05cps) as it neared production status.
Phase One is moments from producing gas and, although delayed against the original timeframe, this will be an exciting moment as the Group transitions from a developer to a producer.
Phase Two funding is progressing well, having issued shares to Ivanhoe Mines (though the larger equity deal expired), the CEF has agreed to inject R1bn into the Project, & various blue chip debt funders have expressed interest in funding up to $1.2bn of debt for the project.
Our Thoughts: Enviable Position
While Phase One delays are disappointing, the underlying fundamentals and attractive economics of the Virginia Gas Project remain and are further highlighted by the interest in funding Phase Two.
The conclusion of the well-priced CEF R1bn equity investment is a strong positive and, we believe, the expiry of the Ivanhoe equity deal is a net positive by avoiding expensive dilution.
Furthermore, the large pool of interested debt funders into Phase Two means that Renergen has both time to find the appropriate equity funding and the flexibility to pick terms.
All in all, we believe that Renergen is in an enviable position for a developer as it transitions into a fully-fledged gas producer.
Valuation and Implied Return: Share Price Disconnected from Value
We see Renergen’s fair value at c.6700cps (previously: 6337cps) and 12m TP c. 8000cps (previously: 7491cps).
With a range of fair values from c.5000cps to c.6700cps (CEF deal implies c.6600cps for REN shares), what is clear is that REN’s share price deviates substantially from even the low-end of this range.
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%.
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:
The positive DD by CEF confirms the quality of the VGP,
Assuming final approvals are received, this injects R1bn of equity funding into the Phase II funding, &
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.
Phase 2 Debt Funding: Quantum Points to Larger Phase 2
Renergen has signed a Retainer Letter with the US International Development Finance Corporation (DFC) for Phase 2 debt funding of up to $500m. The DFC provided debt of $40m in Phase 1.
Added to this, Renergen has received multiple Letters of Intent to co-lend alongside the DFC of up to $700m in senior debt.
The lenders are currently conducting a due diligence to finalize their offers &, assuming a positive outcome, it leaves Renergen in the envious position to pick and choose its debt funding.
These lines of debt are up to $1.6bn in potential funding that—when combined with potential equity funding from Ivanhoe Mines & the CEF—points a clear path to a fully-funded Phase 2.
Renergen is now targeting 65% gearing & the implications of the amounts are that Phase 2 will be materially larger than originally envisioned; we originally assumed a c.R12bn capex cost for Phase 2, but the above figures imply >R15bn – Gas projects tend to get returns to scale & a c.25% larger size may produce >25% more gas.
If we assume a c.$1bn Phase 2, & Ivanhoe (capped to c.$250m) & CEF (c.R1bn) both follow through for their equity and Renergen management draw down on their debt with a 65% gearing (drawing c.$650m), this implies that there remains equity funding of c.$45m or c.R700m (c.1-for-10 rights issue at current prices).
Valuation and Implied Return: Updated for latest spot prices
While Phase 2 size is rising, output upgrades & the Ivanhoe & CEF equity needs to be pinned down for us to correctly model. These are large variables and, currently, still have conditions outstanding.
For now, we have kept the size of Phase 2 flat (which creates upside risk to our valuation and forecasts), assumed debt is drawn down at the end of FY 23E (but interest capitalized until FY 25E), Ivanhoe & CEF follow their full equity rights, 11.5m REN shares are placed during FY 23E (1-for-10 rights issue), & Phase 2 production starts during FY 25E (9 months) with steady-state in FY 26E (albeit, we have used flat spot prices as based on the current basket, ArgHe token price and exchange rates).
This produces a fair value of 6337cps (previously: 6344cps) & 12m TP of 7491cps (previously: 7501cps).
The riots in July & the metalworkers strike (c.12% lost production time in Trellidor) combined with stock shortages in the Taylor to hurt sales & pressure margins.
Despite losing an estimated c.R25m of turnover & c.R12m of EBITDA to these unfortunate events, Group revenue managed to be maintained at R284m (H1:21 – R282m).
Gross margin contracted to 40.1% (H1:21 – 44.6%), EBITDA fell to R46.5m (H1:21 – R57.8m) & HEPS contracted to 25.4cps (H1:21 – 30.6cps).
As a final curveball, a contingent liability has manifested in the form of an adverse labour judgement being upheld. We have assumed an R29m one-off expense in H2:22 due to this & management have skipped their dividend in anticipation of having to fund this drawdown.
Our Thoughts: Better H2:22 Likely
We expect that in H2:22E, the acquisitions in Trellidor Retail, the full-period consolidation of the UK, the maintenance of full production in the factories and more aggressive price increases are all likely to see some of the H1:22 underperformance clawed back.
Despite this, recent raw material price spikes (from Russia-Ukraine) & supply chain disruptions (from China’s latest COVID outbreak meeting its zero COVID policy) put this view at risk.
Our DCF Models imply that Trellidor is worth c.469cps (previously: 548cps) on a PE of 13.2x & EV/EBITDA of 7.3x.
Our Relative Valuation implies a fair value of 411cps (previously 470cps), which does not agree with the above DCF. Despite this, both models indicate a fair value for Trellidor at least greater than 400cps (well above the current 285cps share price).
Rolling this DCF SOTP fair value forward we arrive at a 12m TP of 580cps (previously 656cps) implying a total return of c.103%.