I doubt too many of today’s preppy punters have the time or inclination to look at smokestack companies wheezing a deep, tangible value proposition. There’s much more fun to be had elsewhere with today’s cutting-edge advances … though your favourite Luddite was over the moon at paper and pulp giant Sappi’s neat little fold-up last week. This might, touch wood (ha ha), be one of my most inspired bottom picks. Coupled to a plucky Scotland staying within the +17.5 point handicap against the Springboks on Saturday, it’s been a fairly rewarding week for the household kitty.
But back to the smokestack. I doubt any of the younger investing ilk will remember the Seardel Group, which was once a mighty clothing and textile manufacturing conglomerate. It also, I discovered some decades ago, held a beach house in Plettenberg Bay on its asset register. Not that minority shareholders were invited to spend December at the plush premises.
In any event, Seardel’s shares, famously, traded at a substantial discount to what was stated as a tangible NAV — so much so that an asset manager pleaded at an AGM in the late 1990s for the business to be wound up and the proceeds returned to shareholders. Seardel, of course, was controlled by artificial means — initially a pyramid-holding structure and low-voting N-shares. So, shareholder pressure could be easily deferred.
Despite persistent losses in key operations, there was a reluctance to release the pent-up value, most of which was in Seardel’s many properties. But by 2008 Seardel was wobbling dangerously, which ushered in Hosken Consolidated Investments (HCI) as a white knight via a R200m rights issue. There were some subsequent corporate convolutions (involving, curiously, eMedia), but today HCI-controlled Deneb Investment Holdings stands as the last reference point for what used to be the Seardel empire.
When HCI rushed in to rescue Seardel, there were initial suspicions of an asset-stripping exercise. But Deneb has been patient capital, albeit not yet hugely rewarding capital, personified. Under the leadership of the underappreciated CEO Stuart Queen, there has been a prudent repositioning of Deneb as a diversified industrial holding company. Loss-making clothing and textile manufacturing operations were sold off — most of them, ironically, to the South African Clothing & Textile Workers Union, which is still a major shareholder in HCI.
Deneb also waited for the right moment to offload swathes of its property portfolio, selling off R279m worth of real estate in the past financial year in a strong market. More sales of noncore properties are likely to follow in the new financial year, and the just-released annual report shows that Deneb has clinched agreements to sell more properties for a combined R168m. There are still more than R1bn worth of rent-generating properties on Deneb’s books.
The point is that Deneb is now lightly geared (down to 15% excluding lease liabilities), which, coupled with super-strong cash flows in the past financial year of more than R340m, bodes well for sustained dividend flows. At this point Deneb’s branded products segment, which includes Prima Toys and office equipment specialist Seartec, generates close to half the group revenue of R4.34bn.
The more intriguing industrial products manufacturing division, home to Brits Nonwoven textiles, Formex, Romatex and Premier Rainwater Goods, generated R1.4bn in revenue (roughly a third of total turnover) in the past financial year and R94m in operating profit. Branded products has markedly thinner margins and posted R109m in operating profit. Interestingly, the automotive product manufacturing hub made R114m in operating profit from R835m in turnover.
The eye-catching action, though, is in the industrial product platform, where Deneb has built out a handful of businesses that, for want of a better description, have a new-age bent. Water treatment specialists Blue Reef Water Solutions and Puretech industrial water can tap sweet spots both locally and abroad; and waste management company Explorius is poised to set up a production facility with a capacity of up to 250t a month of bio-coal. Allied to Explorius is Picko Global, which has portable plants that convert industrial byproducts and waste into briquettes, pellets or extrusions.
These are all small tilts that will take years to build up to commercial scale. But all look promising. In the meantime, Deneb’s balance sheet does offer scope to make a meaningful acquisition or three. I have previously pondered whether Nu-World, which appears to be facing some shareholder upheaval, might not fit snugly into Deneb’s branded products segment. Would Trellidor or South Ocean Holdings, both trading at desultory levels, be good fits?
Some important metrics are standing out. Deneb’s staff complement has dropped from 2,680 in 2024 to 2,078 in financial 2026, with revenue per employee rising to R2m from just R1.3m in 2024. Operating profit per employee surged to R176,000 from R94,000 two years ago. If Deneb can keep up this momentum, then the bottom line will benefit materially over the medium term and — with borrowings whittled down — underpin more generous dividend flows.
The last headline earnings number of 39c a share puts Deneb on a modest p:e of 6.6, making it near-perfect fodder for patient private investors. I make Deneb’s tangible NAV about 427c a share, which means the share price offers a discount of about 40%. One matter to ponder is whether HCI, which already speaks for 84% of Deneb, might think it worth dangling a buyout offer to the remaining minority shareholders. Spending a few hundred-million rand (he remarks flippantly) on securing 100% of what might be compelling future cash flows at Deneb would seem to be prudent capital allocation.