On Monday, 24 June, investment holding company Ethos Capital Partners (JSE: EPE) released a SENS announcement. In the announcement, EPE’s board decided to distribute its investment in JSE-listed Brait directly to shareholders. This comes at a time when both companies have seen big drops in market value. So, what does it mean for Ethos Shareholders?
Should you sell or hold your Ethos shares as the unbundling of Brait takes place?
Over the past five years, Brait has experienced a torrid time for a few reasons…
Brait’s investment in Virgin Active suffered during the pandemic causing devastating losses.
Brait also owns UK fashion retailer New Look. However, this investment hasn’t been as successful as expected taking big losses too.
As a result, Brait’s share price has collapsed 95% over the past five years. Today, its share price is 88c. Yet its latest net asset value per share (NAVPS) is 652c. That’s equal to around an 86% discount to its NAVPS.
Moreover, Brait has a considerable debt problem with the company needing to repay R3.5 billion in a convertible bond by the end of 2024. This requires Brait to stabilise its balance sheet through an equity capital raise of R1.5 billion.
But a recent annual results release hint at a turnaround for Brait…
Earlier this month, the company announced the capital raise of R1.5 billion has been successful and Titan Financial Services (part of the Christo Wiese stable) will underwrite it in full. In addition, the maturities on the bonds were extended by three years to December 2027 giving Brait a further reprieve.
Brait, results reveal an improved operational performance – The company is still loss-making, but losses narrowed remarkably from R928 million a year ago to R171 million. So, on a per share basis, headline loss per share came in at 13c compared to 70c a year ago.
That’s a massive improvement!
And it was all thanks to:
1) A turnaround in Virgin Active — which comprises 67% of the group’s total assets. Virgin’s EBITDA is now positive with active membership rising to just over 1 million.
2) 35% profit growth from Premier Group, which accounts for 18% of Brait’s assets. Premier Group will also pay a dividend, which should boost Brait’s cashflows.
If Brait continues this trajectory, there’s a BIG upside in its share price
Of course, it’s a very speculative investment. But the payout could be worth it.
That’s why in my view, if you are an Ethos shareholder you should participate in Brait’s unbundling. You could be rewarded handsomely. And for Ethos, getting rid of Brait can allow the company to focus on generating value in its remaining core assets.
If you would like to stay on top of what’s happening with Ethos and similar small cap companies, join my Red Hot community here.
Not a subscriber to Money Morning?
You can get free daily recommendations like these with Money Morning eletter. Just sign up here.
