Investment holding companies have had a tough time on the JSE in recent years, with gaping discounts applied even to portfolios of high-quality assets and where portfolio managers have sterling records of capital allocation.
But Brait, once the darling of the market, has taken the concept of prolonged pain to a completely different level. Those with longer memories might recall the company — which ironically was one of the few investment entities to exit Steinhoff International in good time — trading at about R160 in early 2016. One hundred and sixty rand: that is correct.
Factoring in a R1.5bn rights issue at 59c a share, the stock was trading under 90c at the time of writing. Leaving aside the heady days of 2016, the current level represents a collapse of more than 95% since late June 2019, when the share price was about R20.
One might be easily forgiven for thinking Brait holds a portfolio of dud investments. Not so. The remaining two big investments are consumer brands conglomerate Premier, which recently reported stout results and paid a maiden dividend, and international fitness chain Virgin Active, which appears to be bulking up profits after a slower than expected recovery from Covid shutdowns.
Virgin Active gross sales dipped 5%, but there was a 7% jump in members to more than 1-million
Brait values its Virgin Active stake at about R10bn, and the market value of its remaining stake in Premier is about R2.8bn. These valuations stand somewhat uncomfortably against Brait’s market value of just R1.15bn. With Brait stressing that it is not keen to sell off further shares in Premier, it raises a key short-term question around how realistic the value accorded to unlisted Virgin Active is.
Brait’s own estimate of its NAV after the proposed rights issue is 264c a share on a fully diluted basis — meaning the share, as things stand, offers a dismissive discount of 65%.
Perhaps this could be a time for opportunists, who may have witnessed the horrific value smash from the sidelines, to step forward. What might make prospective investors hesitant is that EPE Capital Partners, a significant shareholder in Brait and the de facto asset manager, has opted to unbundle its Brait shares.
That could create a further overhang in Brait shares, even if this week’s investment presentation suggested EPE Capital managers would retain their Brait shares and follow the rights.
If insiders follow their rights, it must — by inference — be a huge vote of confidence for a full recovery in Virgin Active to pre-Covid earnings before interest, tax, depreciation and amortisation (ebitda) levels of £121m.
It’s not that easy, though. Brait insists on a novel, perhaps curious, measure at Virgin Active of “maintainable ebitda”, based on management’s December 2025 estimate sustainable level of £123m. Brait also uses an ebitda multiple of nine — which it is at pains to point out is set at a 9% discount to international gym group peers. The market, judging by Brait’s share price, continues to vehemently contest that valuation.
Perhaps more tangible then is the actual financial 2024 performance by Virgin Active. Gross sales dipped 5% but there was a 7% jump in members to more than 1-million. With membership yields up 10%, revenue rose 18% to £181.5m, with ebitda lurching from £2.9m to almost £25m. This might be the more prudent starting point for anyone assessing Brait’s chances at proper turnaround traction.
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