Brait on solid foundations for growth

This is because the group has a cash-flush balance sheet‚ some of its assets are generating strong cash-flows and Africa is beckoning as opportunities emerge particularly in the consumer sector.

From the looks of it‚ it seems as though Brait is on the right path since it ditched its private equity model last year to become an investment group that mostly targets companies in defensive sectors such as food and retail.

Cash to spare

Currently‚ the group is sitting on cash and facilities of R2.8bn to fund new investments and has no debt‚ Gnodde says.

Brait says cash and cash equivalents as of September were 4.8% of net asset value which was within the benchmark target of 25% or less.

"We have no debt and we have cash and open facilities such that we can write a cheque tomorrow if we had the right asset to invest in‚" Gnodde says.

European entry

Brait last year raised nearly R6bn via a rights issue which it used to increase its stake in unlisted Premier Foods and also this year bought into UK-based frozen foods retailer Iceland Foods.

Its investment in Iceland Foods - after paying £80m for a 19% stake - was its first foray into Europe and was in line with the strategy to invest in businesses that can withstand cyclical economic growth periods.

It also raised R1.5bn from the issue of preference shares which was used to pay debt.

Demand for the shares was so high that Brait received applications for shares worth R2bn‚ which Gnodde says shows investors like the Brait story.

This was also confirmed when up to 85% of investors chose to take script instead of cash at the last dividend announcement in the year to March‚ he says.

But a private equity analyst says Brait probably needs another big ticket acquisition to grow the scale of investments if it wants to achieve its target of delivering an annual 15% growth in net asset value over a three year period from April last year.

In no rush

Gnodde‚ however‚ says Brait is not in a race and will take its time to investigate and eventually make further investments.

He does not say in which markets these investments will be made‚ but acknowledges the potential in sub-Sahara Africa.

"This is a long-term business‚ we (the management team) are still young‚" he says. "But we have got to a good start and we are giving ourselves a 10-year horizon (to grow the business under the new model)‚" Gnodde says.

Six-month HEPS

On Wednesday‚ Brait announced a 14% increase in normalised headline earnings per share to 240c in the six months to September. It declared a preference share cash dividend of 135.63c or 115.29c net of dividend tax.

Brait's net asset value - which is the key performance measure it uses - rose by 11.8% (or 23% annualised) in the six months and this translated into a 25% compound annual growth rate since April last year.

"Brait aims to grow its net asset value per share at a (compound annual growth rate) of at least 15% per annum over any three-year period commencing April 2011 and assuming an opening (net asset value) of the R16.50 rights offer price (Brait offered when it raised R5.9bn last year)‚" the group says in a commentary.

"The group exceeded this key performance measure for the period. The group's (net asset value) per share of R23.01 at September represents an 11.8% increase for the six month period and translates into a 25% (compound annual growth rate) since April 2011‚" Brait says.

Pepkor's great contribution

Pepkor‚ the retailer that targets consumers in the lower end income segment‚ was the biggest contributor to growth in Brait's net asset value‚ says Adrian Cloete‚ equity analyst at Cadiz Asset Management.

Gnodde says he has no doubts about growing Brait's net asset value‚ and this will be achieved through a "disciplined approach" to investing‚ maintaining management costs and implementing strategies to grow revenues of its underlying businesses.

"We are invested in defensive assets that are showing great cash generation and margins and they fit in well with our investment philosophy‚" Gnodde says.

Cloete singles out Pepkor as one of the businesses that has so far been "an exceptional" investment for Brait.

The retailer's target customers constitute a growth market that is expected to expand particularly in fast-growing markets in sub-Sahara Africa.

Strong shareholder value

Cloete says the defensive nature of Brait's investment portfolio has enabled the group to create strong shareholder value in a tough global economic environment.

Gnodde says Pepkor will add more stores to the 118 it has in Africa over the next three years by expanding the number of outlets at an annualised growth rate of 15%.

He says without giving figures Pepkor grew revenue by 17% in the year to June and generated strong cash-flows and margins.

Similarly‚ Premier Foods had performed ahead of target and also increased market share in a highly competitive sector.

Iceland Foods also managed to overcome tough trading conditions in the UK even though an analyst says its margins are under pressure from tough competition in the UK retail and supermarket sector.