82% Discount to NAV – is Brait a buy?

This week I received a mail from Pieter asking me: “Is Brait, Mr Christo Wiese’s company worth a look? The company trades at a big discount to NAV”

So I thought I would share some ideas about the company…

What exactly is Brait?

Brait is an investment holdings company on the JSE.

Its one core shareholder is Titan, a Christo Wiese controlled company. The Government Employees Pension Fund and Ethos Capital also owns significant stakes in the company.

Brait owns Virgin Active – with its huge network of gyms. It also owns Premier, a consumer goods business that owns Blue Ribbon bread, Snowflake, Dove and a number of other brands. And lastly there’s New Look, a UK based fashion retailer.

What’s with Brait’s big discount?

Brait’s investment in New Look didn’t pan out as expected, and it took big losses. Virgin Active also had a bad time during the pandemic. As such the company took a big dip.

Now Brait has debt that needs to be repaid by end of 2024. Whilst its assets are worth WAYYYY more than the debt it owes – it’s all about liquidity. And recovering businesses don’t necessarily generate the cashflow to pay off big amounts of debt…

Brait’s share price is 123c – whilst the company’s September 2023 results put its net asset value at 684c. That’s equal to an 82% discount to net asset value!

Why is the discount so big?

Well – investors are clearly doubtful about Brait’s valuations for its underlying assets.

Or they are fearful a liquidity squeeze might cause the company to get rid of assets below market value to repay debt.

In short – by end of 2024 Brait needs to repay R3.5 billion in a convertible bond.

Once that’s done – the company will be in a much better position. But it doesn’t have the cashflow to do this – so it will have to sell assets.

What assets could Brait sell?

At this stage it looks like Brait will list its holding in Virgin Active as a separate company on the JSE or another stock exchange.

That will enable it to either sell part of its stake or raise capital for Virgin – that could find its way back to Brait.

Virgin Active is still recovering post-Covid. But things have improved substantially. The company grew membership 14% in the past year and is just shy of a million members worldwide.

While Premier has started paying dividends (which adds cashflow to Brait), the company could always sell more of its stake in the company now Premier is listed as well.

New Look would be the most difficult of Brait’s investments to sell, for a decent amount as New Look is still struggling with profitability…

Would I buy Brait today?

Investment holding companies aren’t flavour of the week right now. Investors don’t like them, and there are questions about their asset valuations.

That said – there is upside potential in Brait. Pretty big upside potential.

But it is very speculative.

If you buy this – be aware of the risk. There isn’t clarity on how it will repay its December 2024 bond, whether the company will or can get extensions, etc. The company’s underlying investments are improving though, so it might be worth a punt…

PS. If you’d like to know which small caps are the best buys for 2024, then go here.