One of the more intriguing corporate actions is playing out in a lesser-known part of serial risk-taker Christo Wiese’s investment universe — low-key property group Tradehold.
Tradehold last month proposed selling its UK property interests and paying a fat special dividend, which has sent its thinly traded shares up about 23%. But there could be more price gains on the cards if new-look Tradehold’s value proposition is unpacked.
Initially Tradehold might have appeared a prime candidate for a minority buyout and delisting from the JSE because of the gaping discount it trades to its net asset value (NAV) of more than R20 a share. Wiese, however, says there are no plans to delist Tradehold. Instead, he says, “the alternative, to bulk up [the remaining portfolio], is far more attractive.”
But first, some context. While Wiese is best known for his investments in retail giants Pepkor and Shoprite as well as investment firm Brait and industrial conglomerate Invicta, Tradehold has been around for over two decades.
The business was initially founded as a holding company for Wiese’s UK-based retail ventures — which, at times, included Your More Store, What Everyone Wants and Poundstretcher. But when these floundered, Tradehold was reconstituted as a property holding company that initially focused on the UK real estate market.
But Tradehold underwent various iterations — including housing UK-based lender Reward and SA-based financial services group Mettle (these were subsequently unbundled and listed, and then bought out and delisted). The most significant deal, though, was Tradehold’s 2017 acquisition of a sprawling property portfolio owned by the Durban-based Collins family for R1.7bn — a deal that was, importantly, settled mainly with Tradehold scrip, at R28.73 a share.
The Collins family can’t be terribly delighted with proceedings, not with Tradehold’s share price still trading at less than half of the settlement price for what is generally regarded as a portfolio of prime industrial and logistics properties in SA. Doubly so since Tradehold’s latest accounts show a gross value of almost R9.5bn on the Collins portfolio compared with about R7.8bn when the deal was consummated just over four years ago.
Still, the family did receive Mettle/Reward shares and Tradehold has also been a consistent dividend payer, even through Covid.
The proposed sale of Tradehold’s UK interests aims to unlock value and remove a considerable performance drag
In short, the proposed sale of Tradehold’s UK interests — which are bundled together under a company called Moorgarth — aims to both unlock value and remove a considerable performance drag on the group.
Moorgarth’s biggest problem is its heavy weighting — more than 50% — towards retail properties in the UK (readers will know the fate of Intu, another JSE-listed UK property group). Worse, in Moorgarth’s flagship shopping centre, Market Place Bolton in Greater Manchester, its anchor tenant, Debenhams, has slid into insolvency.
It means that Moorgarth’s contribution to Tradehold’s net profit was just £4.3m (or R82m) in the year to end-February. This pales in comparison to the net profit of Collins group properties of about R320m. Yet, at Tradehold’s present market value of R3.2bn, measured against its tabled offer of about R2bn, or £102.5m, for Moorgarth, Tradehold’s share price infers a value of just R1.2bn on the Collins properties, as well as a smattering of African real estate.
And the offer to buy the Moorgarth assets has been made by related parties — most notably Wiese and several other Tradehold directors (including Ken Collins). That will, of course, raise suspicions, with Wiese well known as a canny deal-maker (Steinhoff aside) who is unlikely to overpay for assets.
The purchase price for Moorgarth includes the loss-making flexible office accommodation specialist Boutique. On paper, the offer appears to be generous — remembering that in mid-2021 Tradehold carried a market value of just over R2.1bn. A proposed special dividend of 400c a share will be paid out of the proceeds.
The offer to buy the Moorgarth assets has been made by related parties — most notably Wiese and several other Tradehold directors
Friedrich Esterhuyse, an executive director at Tradehold, stresses that the offer for Moorgarth needs to be seen in the context of a tough UK real estate market — especially for retail assets.
He says: “In the current environment in the UK it is extremely difficult to sell retail properties. We think Moorgarth can be fixed in a private environment with its higher gearing levels, and that way not remain a drag on the SA properties that have collected 99% of their rentals through the Covid pandemic and the riots in KwaZulu-Natal in July last year.”
Esterhuyse says there are still plans to transform Tradehold into a real estate investment trust, which might heighten market interest in the stock. “There will be good distributions, we will be getting rid of the complexity and will take debt off the balance sheet. It’s not a quick fix, but rather a road map. We want to set up decent distributions and lose the large discount.”
So, as things stand, Tradehold looks a rather compelling value proposition. Factoring in the proposed 400c a share special dividend, Tradehold is trading at an effective 820c a share. This values the group at R2.14bn, which looks remarkably cheap against the Collins property portfolio’s intrinsic NAV of R2.68bn and almost R1bn in other property holdings in Austria and Africa.
Think of investing in warehousing and logistics property specialist Equites at a 40% discount, and that might be the Tradehold proposition in a nutshell.
The possibility of having the Boutique Workplace Company as a tenant of Moorgarth is an interesting option, though it is loss making — and Wiese says there are expectations of a return to profitability in the 2023 financial year. “Boutique finds itself in a good space in a growing market for flexible office accommodation that can be rapidly tailored to specific tenant needs.”
But Wiese is clearly playing down the prognosis for Tradehold’s UK operations. “As far as the UK is concerned, its recovery, as with many countries, is being hampered by inflation, continuing trading issues following Brexit, and now the war in Ukraine.”
While Wiese and Co have offered £102.5m for Moorgarth, Tradehold last week revealed it had “recorded the shares in, and claims against, Moorgarth at a total book value of £149m. That’s a £47m difference, and equates to roughly 350c a share that Tradehold shareholders are now being asked to give up in value.
Of course, this price “sacrifice” has to be weighed up against the benefits of a simpler and clearer Tradehold structure, which might attract institutional investors and ultimately close up the discount being placed on Tradehold’s NAV. One shareholder, who asked to remain anonymous, conceded that a new-look Tradehold could present a far more attractive investment option with its sweet spot in industrial and distribution warehouse properties. “Still, it can be a slippery slope when you acquiesce to losing NAV,” the shareholder says.
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