Long-standing investment company Sabvest Capital (Sabcap), run by entrepreneur and businessman Christopher Seabrooke, reported its first reduction in net asset value (NAV) in 20 years when its year-end results to December 2023 were released.
The predominantly private equity investment fund — where 94% of the nearly R5bn fund is invested in unlisted assets — reported an NAV of R109.36 a share, a slip of 0.7% year on year. This places the counter — presently trading at around R65 — at a discount of 40.4%.
Over the past 12 months some Sabcap investments faced challenging operating environments. Higher inflationary costs, rising interest rates and ongoing infrastructure and supply chain disruption hit the valuations of some assets.
The biggest blow was a reduction in the like-for-like valuation on international labels business ITL. The business is a global market leader in garment labels and identification products in the apparel and garment sector. Supply chains and the global clothing sector were hit hard during Covid and the global shift in some production out of China to other low-cost manufacturing territories affected ITL. The global labels and RFID (radio frequency identification) business saw the largest slump in valuation of any Sabcap asset in FY2023, declining 36.5% (R287m to R499m).
Weaker consumer demand and down-trading resulted in a reduction in valuation for liquor business Halewood International. The group’s trading in 2023 was disappointing as hard-pressed consumers opted for lower-margin ready-to-drink products over spirits within the brand portfolio. That saw the year-on-year valuation of Halewood cut to R92m or 44.7%.
Collectively, ITL and Halewood experienced a R361.3m hit in the portfolio. Sabcap has put in place a new management team at ITL and is confident there will be a material recovery in valuation into late-2024 and 2025.
The second-largest investment in the portfolio, DNI-4PL, saw its valuation trimmed by 3.7% to R990m. The company provides technology, distribution and logistics services to the telecommunications and related sectors. It has a large prepaid SIM card, airtime and hardware distribution business and a fast-growing payments system.
The winners in the Sabcap portfolio were led by the larger holdings. SA Bias, which comprises 25.5% of Sabcap, operates two distinct businesses. Flowmax in the UK is a conglomerate of entities involved in the heat management and fluids handling sector. Narrowtex, based in South Africa, manufactures and exports a range of braids, trimmings and webbing. Both businesses are flying, and the year-on-year valuation increased 24.8%, or R251m, to R1.27bn.
Two other portfolio winners were electrical fittings, lighting and cabling business ARB Holdings, where Sabcap has an 18.3% stake. The valuation rose 42.8%, or R107m, to R357m. The company is well placed to benefit from the increase in electricity grid upgrades and renewable energy connectivity.
Industrial Holdings company Apex Partners, which is 45.3% owned by Sabvest, has been the star performer in the portfolio for more than five years. Its valuation rose R81m, or 16%, to R585m. Headed by former Torre Industries prime mover Charles Pettit, Apex is now the third-largest investment in Sabcap.
Sabcap has listed assets comprising just 6.4% of the overall portfolio. They are UK-listed technology business Corero Networks (R99m), alongside JSE-listed Metrofile (R171m) and Transaction Capital/WeBuyCars (R48m). This portfolio was hit by the decline in the value of embattled Transaction Capital that saw R138m wiped out year on year on the listed quotient to about R320m.
Sabcap is paring back its portfolio with some asset sales in the period. IM speculates this will continue and accelerate during 2024 with the aim of exiting smaller, noncore assets and the funds released used to repay debt. Should that materialise Sabcap could be debt free going into financial 2025.
The past year could be described as a “bump in the road” for Sabcap in what has been an unblemished 20-year growth track record.
With Sabcap trading at R65.22, a decline year to date of 14% and 10.5% over 12 months, the discount to NAV has widened to a point where IM sees a value opportunity.
Management is confident a recovery in the valuation of ITL, growth at DNI-4PL and contributing earnings from SA Bias as a rand hedge — allied to asset sales reducing finance costs — should reset Sabcap on its historic NAV growth track.
IM forecasts NAV of 11.4% to R124.50 a share to December 2024 and, given the present share price and discount, places a BUY on Sabcap.