Last week’s FM Fox story on Long4Life – headed by the JSE’s dealmaking doyen Brian Joffe – offered one possible opportunity for mobilising a chunk of the investment company’s R1bn cash pile. But Long4Life’s nibble at restaurant franchiser Spur Corp pales in comparison to what is happening on the company’s own share register.
If I’m reading things right, Long4Life repurchased more than R80m worth of its own shares in August. The register shows that subsidiary companies Long 18 and Long 36 snapped up another 20.6-million shares last month. Now this buyback tally would shift closer to R100m if we factor in share-buying by entities that appear to be linked to subsidiaries — in the form of MoreSport (roughly 2.5-million shares), Chill (1.4-million), Inhle (500,000 shares) and Sorbet (400,000).
Whatever the case, this is a serious exercise in mopping up Long4Life shares, which trade at a substantial discount to the sum-of-the-parts. The buyback should hearten shareholders, who probably picked up at the recent AGM that Long4Life won’t be rushing into dealmaking in this economic and political environment. Besides cash on hand, it has the capacity to gear up to R2bn should a big opportunity arise. There may be a few eyeballs scanning the share register of Long4Life and Spur at the end of this month.
Don’t (d)rain on my parade
Shareholders in empowerment counter Grand Parade Investments (GPI) (me included) must be heaving a sigh of relief that Burger King has found some traction — and take encouragement from a strong second-half showing in the year to end-June (when better-located new stores added some relish to the profit line). Burger King swung from a R27m loss last year to nearly R12m in bottom-line profit. The key takeout for me is that gross margins were fattened in the second half (after being ravaged by the sugar tax and VAT increase), and GPI CEO Mohsin Tajbhai believes a 54% margin is sustainable. The fatter margin is important when considering that average monthly restaurant revenues increased 14% to more than R1m, and that Burger King’s sales jumped 34% to more than R1bn.
More critical is the delicate balance between GPI’s need to build margin (and by association juicy "cash flows") and the international franchise owner’s need to rapidly expand the footprint in Southern Africa. The determination to meet the initial target of 80 stores by mid-2018, I think, led to some iffy decisions around store location.
But Tajbhai stresses that the expansion pace has been tempered to five stores a year. With this pressure off, GPI should be able to locate stores in precincts that yield stronger returns. Structurally speaking, GPI looks set to remain a hybrid investment vehicle — meaning Burger King will be supplemented by the significant minority stake in SunWest (which operates the cash-spinning GrandWest casino).
I was disappointed at the decision to sell off the remaining 30% stake in the highly profitable limited payout machine operator Sun Slots. That said, GPI needed some breathing space on the balance sheet, and a resumption of regular dividend payments might partly compensate for the loss of this top-class asset.
The return of LeisureNet?
One of the more interesting aspects of the barbarians hammering at the gates of Brait (see last week’s FM) is the proposal to sell off all the investments, save for health and fitness group Virgin Active. That would mean Brait (with its serious head office costs) gone, and Virgin Active, by default, listed.
Then the JSE would, in a manner of speaking, have the old LeisureNet group (formerly Health & Racquet Club, which collapsed under a weight of undisclosed contingent liabilities 18 years ago) back on its boards. I also strongly suspect that if Brait does vanish, Virgin Active would almost certainly seek a listing on an international bourse as well.
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