Former trade unionist and empowerment pioneer Marcel Golding might have properly signalled his comeback with a sterling set of results from Rex Trueform (Rextru), the former clothing maker that is now expanding its asset wardrobe.
It’s been nine years since Golding was forced out of Hosken Consolidated Investments (HCI), which he and fellow trade unionist Johnny Copelyn resuscitated with funding from the South African Clothing & Textile Workers Union (Sactwu) in the late 1990s.
After a partnership that saw HCI emerge as the pre-eminent empowerment vehicle on the JSE, Copelyn and Golding — who served as executive chair — had a bust-up. Golding was suspended from the HCI board after building a position in electronics retailer Ellies without authorisation. Golding called this a ploy to cover efforts by Sactwu to gain editorial control at key HCI subsidiary eMedia, the owner of e.tv and news channel eNCA.
With plenty of capital from large personal stakes in HCI and Tsogo Sun Gaming, Golding was not without options. The almost obscure Rextru might seem like a strange investment vehicle — but the N-share structure and pyramid holding arrangement through African & Overseas Enterprises (Af&Over) is a convenient way to retain both personal and empowerment control.
HCI and Rextru are like chalk and cheese. HCI — helped by strong cash flows from its gaming, transport, media and coal mining segments — has remained firmly in the investment limelight with adventurous deals in oil and gas exploration and platinum mining. By contrast, Golding has kept a lower profile at Rextru, and very rarely, if ever, gives media interviews. HCI carries a market value of more than R16bn, and Rextru (even adding Af&Over) just R313m — which is a third of the market value of HCI industrial subsidiary Deneb.
While size comparisons might not flatter Golding’s efforts since 2014, the determination to sew up control at Rextru might be intriguing for deep-value-inclined small-cap punters
While size comparisons might not flatter Golding’s efforts since 2014, the determination to sew up control at Rextru could be intriguing for deep-value-inclined small-cap punters.
No less an entity than empowerment group Brimstone Investment Corp battled the Shub family, who long held artificial control via the N-share and pyramid structure, for sway at Rextru (and Af&Over).
In the end Brimstone — at its wits’ end over the conservative controlling shareholder — sold its holdings to Golding, not too long after he left HCI. By 2017 he and fellow investor, Hugh Roberts — a respected former asset manager and long-time Rextru/Af&Over shareholder — bought the Shub family’s controlling stake in Rextru. Like Golding, Roberts keeps a low profile.
In the ensuing years Golding has not dramatically rejigged Rextru, nor has the market altered its perceptions of the business. In fact, over five years the more tradable N-shares have shed 30% despite a sturdy NAV underpin.
Essentially Rextru still revolves around its core fashion retailing operations contained in the Queenspark chain. Queenspark was initially started in the early 1980s as a “factory shop” for Rextru’s traditional clothing manufacturing operations. It was not long before the Shub family smartly shut down and sold off its clothing manufacturing segment and started building out the retail component.
Analysts will probably deem Queenspark (all 86 stores) too small — at least against such sector stalwarts as Mr Price, TFG and Truworths International — for serious coverage. But, despite some inconsistent form, Queenspark has generated decent cash flows for Rextru, which Golding and Roberts have mobilised a little more adventurously than the Shub family did.
In recent years, Rextru has built out its property hub — which was initially centred on its head office in the now-vibey Salt River in Cape Town — with industrial real estate. Perhaps more significant, in terms of diversification, has been shifts into water reticulation (via an investment in South African Water Works) and media (a 63.7% stake in Telemedia). The concerted property play is interesting, bearing in mind that Golding is a major shareholder at JSE-listed Texton Property Fund, as is the media thrust, remembering Golding’s tenure as CEO of e.tv.
Retail analyst Syd Vianello says it seems there is a strategy to buy property mainly in Cape Town’s industrial areas with Queenspark’s cash flows, “plus anything else that looks interesting”.
The trouble is if they really want to do something big, they need to issue paper. But there’s no liquidity
— Syd Vianello
“The trouble is if they really want to do something big, they need to issue paper. But there’s no liquidity. The holding company [Af&Over] structure is interesting though, so far, there is no evidence they will use it,” he tells the FM.
Golding is overseas and “tied up in meetings”, but there is a fair bit to glean from the just-released interim results to end-December.
Operating income nearly trebled to R103m, covered by operating cash flow of R112m. Headline earnings came in at 270c a share, placing Rextru N-shares on a p:e of just over five.
The retail segment’s operating margin was 16.6%, while Rextru’s interim return tally showed 25%, 45% and 18% on equity, capital and assets respectively.
NAV has bulked up to R18.74 a share with the FM calculating intrinsic value at R17.68 a share (after stripping out a smidgen of goodwill). The group’s cash balance accounts for around 460c a share.
Queenspark is still chipping in the bulk of operating profits with an interim contribution of R78m. Property accounted for R14.5m and Telemedia R11.2m, with the water investments making a small loss.
Proper cash flows might be some way off at the water investments even if infrastructure appears to be badly deteriorating countrywide. But it seems the property and media segments could be playing a far bigger role for Rextru in the medium term.
The R67.5m Telemedia acquisition was settled mainly in scrip and a small dollop of cash. The business installs satellite transmission, radio and television signal distribution and supplies microwave and satellite news gathering services.
The price looks interesting considering that Telemedia’s sellers undertook to make cumulative profits of R78.7m from the start of March 2020 to end-June this year.
There was scant comment on the media assets in the interim report. But in the annual report, Golding wrote: “We are still in the fulfilment of the warranty phase, so any new initiatives will have to wait until the third quarter of our financial year.”
Still, he said, Telemedia and media logistics hold promise, “if we can successfully stitch together a coherent and integrated plan”.
Rex Trueform is also steadily amassing its property empire; it bought 5 Fitzmaurice Avenue in Epping for R85m while the 51%-held Belper Investments snapped up another five industrial properties in Epping for R104m. Whether Texton ever comes into the picture is not clear — but if Rextru takes its future form as an investment holding company perhaps there is scope for some corporate action on the real estate front.
Significantly Rextru’s bumper interim results did not see it reinstate an interim dividend, which was last paid in 2016. This hints that the group is keeping some powder dry for new opportunities.
Mischievous as the thought might be, punters might well wonder if Golding still carries a torch for Ellies. Back in 2014 he spent R24m buying shares at around the 400c level — a far cry from the present price of 8c-9c.
Currently Rextru has more cash than Ellies’ market capitalisation of R72m. Just saying ...
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