Long4Life listed on the JSE on 7 April 2017 as an investment company with a lifestyle focus. The company led by deal making doyen Brian Joffe invests in businesses with attractive growth prospects, led by strong, entrepreneurial-minded management teams and takes a long-term view on its chosen investments.
Long4Life (L4L) has been listed for a while now. The first time IM looked at this company things were not going well for the share price and now, almost two years later, there is still no joy.
L4L is an investment holding company that raised R1.9bn basically on the reputation of its founder, Brian Joffe, the doyen of dealmaking on the JSE with his previous companies Bidcorp and Bidvest. The group used the pre-listing funding to buy what it identified as attractive opportunities in "lifestyle-orientated" industries. L4L has some really good assets — the problem is that the SA economy is a shambles.
L4L owns the Sorbet group, which has brands in the personal care, grooming and beauty segment. Sorbet has more than 200 stores around SA offering personal care-related services and selling premium body and skincare products. It has grown tremendously and is well known among the higher LSM segments of the SA retail market.
L4L also owns sports and recreational retailers and brands such as Sportsmans Warehouse and Outdoor Warehouse. It bought Veldskoen, and has done a wonderful job of marketing it. The Veldskoen brand has a presence in the US now and has adopted a fresh, vibrant look.
L4L has also entered into the beverage market with Inhle Beverages and Chill Beverages, which, between them, own energy drinks, mineral water and canned and bottled soft drinks and mixers, all produced locally. Chill owns niche brands such as Fitch & Leedes mixers, Score energy drink as well as mineral water and a budget sparkling wine in a can.
L4L has done a good job at accumulating a good portfolio of businesses. Not all the deals it wanted to do worked out, but that’s the nature of dealmaking. Overall, it’s a solid group of companies with well-known brands that will be hard to compete against. So why has the share price not done so well?
This is likely a result of the overall economic conditions in SA, rather than a reflection of the quality of the acquisitions made after listing. As reported in October 2019, group sales grew by some 20% and cash generated from operations by 86%. Unfortunately, trading profit and headline earnings per share were down 1% and 4% respectively. This was due to continued investment in infrastructure and store development, as well as marketing (evident from the amazing brand positioning of Veldskoen).
The company states that "working capital is typically absorbed in the first half of the year as the businesses ramp up for the holiday and summer season trading, which impacts operating cash flows at the half-year". We will see how true this is when the next set of results are published. In a nutshell, the company — aside from some vigorous share buybacks — is spending all the money it is earning to streamline and improve its business.
The sport and recreation division might have also been a drag on the group as profit margins have been under pressure, though management anticipates margin improvements in the second half.
L4L also accumulated a rather sizeable position in restaurant business Spur Corp, at one stage speaking for about 15% of it. That share has since been sold down, and L4L will presumably mobilise the proceeds to buy back more shares.
L4L is a good business in a bad economy. IM really would like to buy it, but perhaps will wait in the hope that the p:e multiple dips below seven. Keep watching the share for further downside.
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