Famous last words … I’ve had a few. The assertion that has drawn the most mockery was my slightly inebriated contention at a rowdy dinner table at Rhodes University that Bob Dylan would never make another decent LP. That’s a big statement.
But this was after the whining bard had released the truly awful Knocked Out Loaded, which had no redeeming qualities (not even Brownsville Girl) and sent me scurrying for the soothing sounds of Nick Cave. Of course, it was not long before Dylan bounced back with the extremely accomplished Oh Mercy, followed by several other masterpieces over the next two decades … as I am still often reminded.
In similar vein, readers might recall dealmaking doyen Brian Joffe’s famous statement, in the early days of the Covid lockdown, that gyms were yesterday’s news. At the time all gyms were closed and fitness freaks were doing rigorous training routines at home (which benefited Joffe’s investment in Sportsmans Warehouse). But Joffe’s report of the death of gyms has proved to be exaggerated, with Brait’s Virgin Active fitness chain looking decidedly lively again.
At the end of March, total membership of 847,000 represented three-quarters of the number at the end of 2019 — when the fitness chain posted earnings before interest, tax, depreciation and amortisation (ebitda) of more than £140m. Membership numbers grew 12% year on year — not a bad achievement considering the restrictions at play across the various countries in which Virgin Active operates.
Membership numbers grew 12% year on year — not a bad achievement considering the restrictions at play across the various countries in which Virgin Active operates
Brait estimates maintainable ebitda, based on look-through to the end of March 2024, on a sustainable level of £110m. That does give some underpin to the R8bn valuation placed on Brait’s stake in Virgin Active — which, by the way, is considerably higher than Brait’s entire market value of about R5.7bn.
One needs to remember that the latest fundraising at Virgin Active — which included significant contributions from retail tycoon Christo Wiese and new Virgin Active CEO Dean Kowarski — was pitched at Brait’s valuation of the fitness chain. Brait also laid out its value-unlock plan in some detail — notwithstanding the market’s scepticism around an IPO for consumer brands conglomerate Premier Group.
The official word from Brait is that the Premier IPO is still scheduled for some time this year, though cues will be taken from the market. This exercise will entail the sale of a 30% stake in the business with these proceeds used to settle debt (and still leave some money over for operating costs).
Then plans are set for early 2024 to sell the remaining stake in fashion retailer New Look, which — coupled to another partial sale of Brait’s holding in Premier — should raise enough proceeds to settle its convertible bonds. The recently issued bonds can be converted to equity in December 2024, or settled.
With debt hopefully expunged by 2025, Brait will be free to unbundle its shares in Premier and Virgin Active (presumably by that time holding a listing on an international bourse) to shareholders. Brait CEO Peter Hayward-Butt made quite a startling statement around this process — pointing out that if Brait, now trading at a 50% discount to NAV, grew its NAV by 10%-12% a year, then the proposed value unlocking could see the share price treble from where it is today. Food for thought …
A new Goldrush
Speaking of value unlocking, RECM & Calibre (RAC) no longer carries investment company status, with the last of its legacy investments taken out of the equation. The group’s sole investment is its 58.8% stake in Goldrush, the electronic bingo, limited-payout machine (LPM) and sports betting business, which gives investors a nifty alternative to the large gaming counters such as Sun International and Tsogo Sun Gaming.
The LPM business is going great guns, and there’s still room for meaningful expansion. Unlike Sun and Tsogo, the strong LPM performance is not overshadowed by the more sluggish spinning of large urban casinos. In the year to end-March Goldrush generated ebitda of R341m, which strongly supports RAC’s “conservative” estimate of a R1.63bn equity value on the business. RAC’s share is worth R961m, and more than R700m after debt and the capital gains tax liability is stripped out.
With a market value of less than R600m, I suspect RAC won’t hesitate to buy back its own shares in the short term. Anyone who misses Niveus (and I know I do) should take a closer look at RAC.
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