A review at Brian Joffe’s holding company has got analysts talking about it possibly becoming the latest small company to leave the JSE. There’s also speculation that it could be a prelude to a sale of assets or the company as a whole.
It’s not all bad, however, as there’s also talk that Long4Life, which owns diverse assets from shoe company Veldskoen to the beauty chain Sorbet, may be looking to expand. Some commentators have suggested the company could increase share buybacks to boost a share price that has dropped about 46% to R4.18 since peaking at R7.80 in July 2017. It took a knock when Covid-19 hit SA in 2020 because many of its underlying businesses were prevented from trading, but has since recovered those losses.
Joffe’s reputation, having cofounded Bidvest in 1988 and built it into a conglomerate with major businesses from food to banking in SA and overseas — at one point the company was a shirt sponsor of then English Premier League team Sunderland — hasn’t been enough to keep the investment holding company he founded in 2016 from trading at a discount to its underlying assets.
The net asset value (NAV) per share of the underlying companies equals R6.27, with it often having traded at about a 50% discount. It closed at R4.18 on Friday, down 0.24%.
Joffe has frequently said in results presentations that Long4Life shares are undervalued. The appointment of Investec to run a strategic review may be an attempt to address that.
A spate of smaller companies that have left the JSE, including investment group Anchor Capital and former Business Day owner Tiso Blackstar Group, has raised speculation that Long4Life might be preparing to do the same. Small-cap companies, neglected by analysts and therefore fund managers, have found the cost and regulatory requirements not worth it given depressed share prices and a lack of liquidity in the market.
Protea Capital’s Richard Cheesman said: “The review is meant to address the undervaluation. It will certainly consider asset sales, among the couple of options available to the company such as buying back shares, paying a large dividend or unbundling an asset.”
The company has frequently bought back shares, often as a way to drive up the share price and return value to shareholders. In December, Long4Life spent R147.9m on share buybacks after spending R113m earlier in 2020.
Returning more cash to shareholders “seems like the easiest place to start. On the most recent results call, many shareholders vocally supported the company buying back its shares,” Cheesman said.
The Covid-19 outbreak and the difficulty in valuing companies, especially those in distress, is proving challenging even for skilled dealmakers such as Joffe. Potential buyers may see some targets as overvalued given the changed environment, while entrepreneurs who have survival prospects don’t want to give away their businesses on the cheap.
Others think Long4Life could unbundle assets such as Chill, a Stellenbosch-based beverage company that it bought in 2017. In the 2019 annual general meeting, Joffe said the acquisition had been an “area of disappointment”, because sales had not matched expectations after the increased investment in production capacity and marketing.
Fitch & Leedes tonic waters, which are typically served with alcohol, have suffered from Covid-19 lockdowns and alcohol bans, as well as the continued closure of nightclubs and prohibition of large parties.
The company’s energy drink brands and tonic waters compete against brands such as Schweppes, which is owned by global giant Coca-Cola, and Red Bull. Investment analyst Chris Logan says it could make financial sense to merge the drinks company with a larger beverage player.
Joffe was quoted 18 months ago in the Financial Mail as saying he would consider selling Chill if offered the right price: “If you bring me the cheque, we will talk.” Insiders say the fit between the founders of the company and Long4Life hasn’t been ideal. CEO Grant Hobbs quit in 2020.
Asked to comment on market speculation of a potential sale, Long4Life said there is “no sale process under way”.
Small Talk Daily analyst Anthony Clark said he had heard “whispers” that a listed industrial company was interested in buying Chill.
Small-cap analyst Keith McLachlan said it can’t be assumed that the review means the investment holding company will sell an asset.
“You do not call something a ‘review’ if you already have the answers, but this action implies that management is asking the right questions. Bringing in a third party for a strategic review implies that all options are on the table.”
Long4Life said in a statement it can’t offer further insight because it is in a closed period. Joffe may update the market in the middle of May.
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