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Astoria Investments – Results Note – Leatt Investment Concluded

Share Code: ARA – Market Cap: R508m – Discount to NAV: 40%

Q1:24 Results: Currency headwinds

  • Astoria Investments reported its Q1:24 results that show Net Asset Value (NAV) per share decreased -7.7% and -4.8% in USD and ZAR respectively as currency headwinds impacted translations and Goldrush (code: RACP) and Leatt’s (code: LEAT) share price pressure endured for this period.
  • As a reminder, Astoria’s reporting policy for Q1 and Q3 periods is not to perform detailed valuations of unlisted investments (except when developments require an immediate and material change in value). Price changes for listed investments and currencies are reflected on an ongoing basis.
  • In our updated Sum-of-the-Parts (SOTP) valuation below and on the next page, we have done the same and updated our view for the latest share prices and exchange rates.

Commentary: Further Leatt Investments Concluded

  • Astoria’s further acquisition of Leatt Corp’s shares was concluded during this period. We discuss this investment and the underlying business in some detail in our previous results note (LINK) and consider it an attractively priced asset with the deal using Astoria’s equity in a non-dilutive manner.
  • Late in April, Astoria’s management hosted an investor event that was recorded and can be viewed here: LINK.

Valuation, 12m TP & Implied Return: Above Average Discount

  • Updating Astoria’s NAV to current prices, the share is trading at c.40% discount to the current NAV (Previously: 42%).
  • If we take out our calculated “HoldCo discount” of c.14.2% (Previously: 13.9%) from this NAV, we arrive at a fair value for Astoria’s shares of c,1162cps (Previously: 1192cps) or c.42% higher than the current share price.
  • Rolling this fair value forward at our Cost of Equity, we arrive at a 12m TP of c.1386cps (Previously: 1420cps) that implies a potential return of c.69% from the current share price.

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.

Astoria Investments – Results Note – Durable Performance & Cautionary Issued

Share Code: ARA – Market Cap: R604m – Discount to NAV: 24%

Q2:23 Results: Currency and Market Headwinds

  • 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.

Commentary: Businesses Robust & Investments Degearing

  • 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.

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.

Renergen – H1:23 Results – Share Price Disconnected from Underlying

Share Code: REN – Market Cap: R3.7bn – PE: -105x – DY: 0.0%

H1:23 Results: Delayed but moving swiftly forward

  • 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 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.