There are innumerable portfolio angles to mull in the end-June interim results for the widely diversified investment company Sabvest Capital. But perhaps the most telling nuance around investment philosophy lies in a relatively insignificant transaction that involved the sale of almost 2-million shares in recently listed WeBuyCars (WBC).
The WBC shares came courtesy of Sabvest’s existing shareholding in Transaction Capital, which spun out this fast-growing online used-vehicle dealership. Sabvest, however, opted to retain its (small) stake in the former parent Transaction Capital. Many investors, I’m sure, would have done just the opposite — in other words, ditched Transaction Capital and retained WBC.
At this juncture WBC’s share has performed quite niftily since listing, while Transaction Capital still loiters in the corridor of uncertainty. It’s early days. There are a few contrarian voices that believe value can be restored at Transaction Capital … and that WBC has been revved too hard on a road that might have bigger competitive obstacles in the future.
That said, it’s not like the retained holding in Transaction Capital is going to move the needle at Sabvest … unless the group hikes its shareholding significantly. Whether there is a willingness — or, in fact, scope on the balance sheet — to chase up a stake in an “undervalued” Transaction Capital remains to be seen.
It’s not like Sabvest is not actively tweaking its portfolio. The past 12 or so months saw a flurry of transactions — the most significant, for me, being the sale of its 24.66% stake in chemicals business Rolfes Holdings for almost R180m. Also worth noting was the sale of 36-million shares in document storage business Metrofile for R108m with a put option on the remaining holding of 21-million shares (which will bring in another R63m when executed).
The past 12 or so months saw a flurry of transactions — the most significant, for me, being the sale of its 24.66% stake in chemicals business Rolfes Holdings for almost R180m
This feels like a respectable exit, with Metrofile shares currently trading around 240c, though it might seem like Sabvest never quite extracted full value from what has been a dull but dependable Metrofile. It’s worth remembering Sabvest has been a key investor in the business since the implosion of the MGX Group about 20 years ago, and has collected a heap of dividends along the way.
The exit at Metrofile would have left just a sliver of listed investments inside Sabvest were it not for some remarkable developments at LSE-listed Corero Networks. Sabvest recently bumped up its stake in Corero, a cyber and network security specialist started by Datatec prime mover Jens Montanana, by 1-million shares to 52-million.
That was a timely foray. Between the end of December last year and the end of June this year, the value of Sabvest’s Corero holding jumped from R99m to R174m. Since the closing of Sabvest’s financial year the Corero share price has surged further, and the FM estimates the current value of the holding at about R234m. That’s about 660c a share for an investment that would have barely merited a glance in previous years.
Even more substantial is the 46.4% stake in Apex Partners, the industrial cluster headed by the mercurial dealmaker Charles Pettit. That stake is now reckoned to be worth R686m — well up from the R560m registered at the end of June 2023 and the R585m at the end of December. Apex includes specialist industrial businesses such as ELB Equipment, Letaba Pumps, TGS and Elephant Lifting, as well as engineering/construction businesses such as ETX Projects and CBZ Solutions. Apex also has an intriguing 22.1% stake in JSE- and ASX-listed mining engineering firm DRA Global.
No doubt cynics will question the value uplift in Apex. But if the JSE is used as a reference point, it hardly seems far-fetched. KAP Industrial — which is arguably more diversified than Apex — is up 43% over six months, Argent Industrial 45% and Invicta 20%. The earnings before interest, taxes, depreciation and amortisation (ebitda) multiple applied by Sabvest to Apex is a ballpark 5.5 — and the investment yielded R18.6m in dividends in the interim period.
Overall, Sabvest — in spite of its concerted moving and shaking — still trades at a roughly 35% discount to its stated intrinsic NAV of about R118 a share. It may be worth assessing the two portfolio big guns — DNI and SA Bias Industries — to understand whether the discount on what is largely a collection of unlisted investments is reasonable.
DNI is a diversified technology company involved in mobile and hardware distribution as well as technology and value-added services. The investment is accorded a value of R974m, which is based on a 6.5 ebitda multiple. There is scant operational or financial information provided by Sabvest — save for noting a dividend of R37m was paid for the interim period. We are also reassured that the business is highly cash generative.
SA Bias, stamped with a R1.2bn value, is involved in fluid handling equipment and measurement systems via Flowmax and in specialist fabrics via Narrowtex. Again, there is not a surfeit of detail with which to gauge performance — other than that an ebitda multiple of six is applied to Flowmax and of five to Narrowtex. SA Bias also made an interim distribution of R35m.
Compared with peers Remgro and Brait, the detail on the unlisted investments seems a tad lacking. Both DNI and SA Bias are great little businesses. More detail on revenue and profits would certainly not hurt … and neither would a keener synopsis of the respective operating environments.
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