One of Cape Town’s oldest empowerment investment vehicles Brimstone looks determined to de-gear its balance sheet so it can snag new opportunities.
In the last month Brimstone has partially exited two of its mid-size investments – local property group Equites and Phuthuma Nathi (the empowerment partner in pay-for-view broadcaster Multichoice).
The exercise has raised almost R500 million – that being R321 million for the Equites shares and R175 million for Phumthuma Nathi.
Brimstone retained stakes of 2.27% in Equites and 2.81% of Phuthuma Nathi. It is not clear whether Brimstone will seek to sell these remaining stakes as both investments provide strong dividend flows.
Brimstone noted that in light of the general economic uncertainty, the board of directors had undertaken a strategic review of its investment portfolio with a long-term strategic view.
The Board had identified assets that it believed could be partially or fully disposed of at acceptable valuations without jeopardising this strategy.
Brimstone said the proceeds from these disposals would be applied to meet funding obligations in the near to medium term.
Whether Brimstone – which carried debt of close to R4.8 billion at the end of December – intends jettisoning more investments remains to be seen.
The group has looked intent to build a formidable food niche around Oceana group and Sea Harvest (which now includes diary business Ladismith Cheese). It also recently signalled a shift into health care with the acquisition of a full controlling stake in Obsidian Health.
Brimstone has also invested further into Oceana, and now holds a commanding 25% stake in the diversified fishing group.
In terms of cashing in other investments, there might be an opportunity to sell off some of its investment property portfolio (which is worth roughly R100 million) as well as stakes in MTN Zakhele and Aon Re.
Brimstone seems restricted in its ability to raise fresh cash via a rights issue since its share price discounts the intrinsic value of its investment portfolio by a considerable margin.
One prickly issue that Brimstone probably needs to grapple with sooner rather than later is clothing manufacturer House of Monatic.
In the last financial year Monatic’s revenue decreased by 13% to R137 million and the business generated a loss of R32.6 million (after retrenchment costs of R5.3 million).
Things don’t look easier for the new financial year.
In 2019 Monatic embarked on right sizing exercise, and now the company is in the process of relocating its factory to new premises in Epping. Brimstone directors contend this move will result in a more efficient manufacturing process.
Whether Monatic could be sold to its management and workers is debatable. Deneb, which housed the old Seardel assets, recently managed to sell the old Hex River Textiles (HexTex) business for R65 million – although CBN notes that payment on the deal was still outstanding at the time of going to press.
Meanwhile another Cape-based empowerment stalwart Grand Parade Investments (GPI) – which is also lumbered with substantial debt – is waiting with bated breath for finality to proposals to sell two of its investments.
At the time of going to press GPI was still embroiled in talks to re-negotiate the sale of the South African master franchising rights for fast food brand Burger King and its 30% stake in limited payout gaming machine business SunSlots.
GPI also holds a significant minority stake in the cash spinning GrandWest casino in Goodwood, which has been the source of valuable dividends for many years.
While the SunSlots deal seems likely to go ahead now that the buyer, Sun International, is set to raise R1.2bn in fresh capital, GPI probably would not relish the prospect of either dropping the R700 million price tag on Burger King or having to find a new buyer in these lean times.
