Brian Joffe’s investment company, Long4Life (L4L) — as speculated in the FM last month — has bitten off a serious chunk of restaurant franchisor Spur Corp.
L4L has added substantially to an initial stake of 4.6% in Spur by spending (after the close of the end-August interim reporting period) R304m to snap up another 12.7-million shares.
At this point L4L holds a useful 14.4% stake in Spur, a position that I think will be added to in the coming months.
Spur has no real anchor shareholder — not since founder Allen Ambor stepped away from the business.
Spur also fits Joffe’s investment mandate perfectly — strong brands, reliable cash flows, reinforced balance sheet and solid management. Still, the Spur foray reduces L4L’s cash balance markedly.
Cash was reflected as R871m at the end of August but in reality is now closer to R565m.
Even though the underlying operations are churning out cash, L4L will need to gear up fairly substantially if it intends making a proper play for Spur, which carries a market value of almost R3bn.
While Joffe has been determined to clinch a big acquisition for L4L, there is the prickly issue of L4L’s heavily discounted share price.
The group — as also reported in the FM last month — has made a sizeable investment in buying back its own shares, spending a not-insubstantial R110m to repurchase 26.8-million shares at an average price of 407c.
While Joffe has been determined to clinch a big acquisition, there is the prickly issue of L4L’s discounted share price
Joffe says L4L, which is foregoing dividends for now, intends continuing a share buyback "at suitably priced levels to maximise shareholder return".
It is also worth noting that L4L’s sport and recreation division (Sportsmans Warehouse and Outdoor Warehouse) managed to hike top line 12.7% (8.3% on a like-for-like basis) to R1bn. This was achieved against retail price inflation of just 1.1%, again confirming this country’s sports-mad psyche and the decision to open new outlets.
Saucy little number
Small food group AH Vest — best known for its All Joy condiment brands — really needs to spice up its share liquidity. Nowadays there might be a few small-cap punters willing to nibble at the share … if there was any scrip available. The results for the year to end-June, I thought, looked quite juicy, with revenue up 13% to R177m, and market share gains requiring no great sacrifice as the gross margin fattened slightly to 41%.
Further market share gains could be on the cards, with AH Vest recently commissioning a new hot sauce line as well as launching a canned vegetable range and a canned tomato range.
Headline earnings shifted close to 6c a share, and shareholders would relish the fact that cash flows from operations (R17m) and net cash inflows (R11m) equated to around 17c a share and 10c a share respectively.
AH also encouragingly spread its customer base with its largest single client dropping from 49% of revenue to 42% and the second-biggest client reducing from 19% to 15%. But with controlling shareholder Eastern Trading holding over 70% of the issued shares there is not much scrip available, and the bid/offer range between 20c and 50c tells a frustrating story.
The last trade in AH was at 10c, which (unbelievably) values the group at just over R10m.
In truth, AH Vest is too small for either institutional interest or the attentions of larger listed food counters.
Eastern Trading could reverse some of its food operations into the company, a development that would probably need to coincide with bringing in new shareholders to ensure a semblance of a decent free float in shares.
On the other hand, the temptation to delist AH Vest must be enormous. It would cost Eastern Trading a mere R15m to take out minorities, even if it pitched a buyout at 50c a share.
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