The only upside of catching swine flu five years ago was that that dreadful virus must have bought me some immunity to the regular flu strains. I have not been sick for yonks.
I certainly did not get as much as a sniffle during Covid, even though my nearest and dearest were stricken several times. I think my luck ran out last Thursday when those familiar symptoms flared up — aching joints, the helmet head headache and a streaming schnoz.
By Saturday evening I was man down and ailing. I would have been gutted to miss a padel tournament I had entered with the Finance Ghost as my partner. Fortunately, that rained out and was happily postponed. I did, however, miss making my debut in the prestigious Pincus Sunday tennis extravaganza in Sea Point. I sent a more than able replacement, but he came back with the wooden spoon. Perhaps I dodged a bullet.
Speaking of opportunities and risks, the latest NAV statement from empowerment investment company Brimstone is unlikely to spark investor enthusiasm, despite the discount to intrinsic NAV (iNAV) remaining vast.
These days the bulk of Brimstone’s value lies in its two listed fishing investments — Oceana Group (owner of the Lucky Star brand) and Sea Harvest. At valuations of R2.25bn and R1.6bn, Oceana and Sea Harvest are worth about 902c a share and 647c a share respectively.
The portfolio weightings are 43% and 39% respectively. To the novice Brimstone watcher, the situation may seem quite crazy — noting a 500c-510c range for the group’s ordinary and N shares. The official iNAV at end-March was just more than R3bn, or R12.26 a share. This means Brimstone’s share price, on paper, is offering a tantalising discount of well over 50%.
This is rather dismissive for an enduring empowerment contender that has been good to its original community shareholders. Such a gaping discount would usually be reserved for investment counters with extremely poor capital allocation or grossly overvalued unlisted portfolios. Brimstone is neither of these.
Of course, patient investors — particularly those who covet quality fishing assets — can happily accumulate Brimstone at this deep discount
What is undermining investment sentiment at Brimstone is that the path of value unlock is not easy. There is debt — considerable debt, to be honest. It is not great to be sitting with a debt pile at a time of markedly higher interest rates, even though Brimstone, thanks to strong dividend flows from Oceana and Sea Harvest, in particular, can comfortably service this debt.
The debt has dropped from over R3.5bn in 2018 to about R2bn. But right now Brimstone does not have too many options to cull the debt further ... at least in the short term.
This is a pity, since a degeared Brimstone would offer an enticing alternative and discounted option on owning both of the JSE’s two biggest fishing stocks. Attractive as these may be, the debt does close any possibility of Brimstone unbundling these interests to shareholders in the immediate future. Even selling part of its stakes in either fishing company is difficult, with strict regulations on ownership of these assets.
The last time I looked, a fishing company could not be sold to a buyer less empowered than the seller. This surely limits the pool of potential buyers. Brimstone’s ability to repay its loans is also hamstrung by investments where, as an empowerment partner, it is locked into a long vesting period.
Looking past these complications and frustrations, there is probably enough value outside the two fishing groups to eventually make a dent in the debt.
Brimstone’s stake in Equites Property Fund was reflected as worth R207m, though a plunge in the share price since end-March might mean an up-to-date valuation of closer to R160m. The 5.1% stake in private tertiary education venture Stadio is worth close to R200m, and there is another R100m or so in the 12.8% stake in unlisted business school Milpark.
Other empowerment vehicles Phuthuma Nathi (MultiChoice) and MTN Zakhele Futhi are worth about R290m, while the unlisted FPG Property Fund is now worth about R279m. So that’s about R1bn in smaller investments; perhaps R1.2bn if the really small investments like financial services group Aon and health-care specialist Obsidian are chucked in.
I can’t ever foresee a mass sale of Brimstone’s smaller investments, but there will no doubt be a staggered exit as investment mandates expire or specific opportunities arise. In other words, there will be no short-term trigger to markedly narrow the discount on Brimstone’s NAV.
That’s not a great situation.
Of course, patient investors — particularly those who covet quality fishing assets — can happily accumulate Brimstone at this deep discount. The dividend flows from underlying investments can service debt and support payments to Brimstone shareholders.
And a value unlock will eventually come, possibly even through Brimstone steering a merger of Sea Harvest and Oceana. It’s certainly one for stowing away in the “deep value” bottom drawer.
In the meantime, hope that one of Brimstone’s smaller investments catches fire and makes a quantum leap in value.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.