PERHAPS I am getting soft... but I was quite impressed with the showing by Sekunjalo Investments in the year to end August 2008.
I have for the past few years maintained a sceptical watch at Sekunjalo, largely because I disagreed with the directors' valuation of the underlying businesses and investments - particularly the biotechnology investment Bioclones.
But let's not harp on the past, and let me rather tell you what I found encouraging about Sekunjalo's recent results.
Most heartening was that the core seafood and fishing business, Premier Fishing, delivered - as promised - a strong turnaround in the second half.
Fishing, in my opinion, is the value anchor at Sekunjalo.
Premier, which has been on a major cost cutting drive, bolstered its margins considerably to push operating profit up to R38m (previously R24m).
Some of the cost cutting exercises have included shutting down a squid factory in Humansdorp and a pelagic processing plant in Saldanha Bay, which cut between R2,5m to R3m of costs per month.
I remember one Sekunjalo executive telling me last year that Premier was aiming for medium term operating profit of R60m. Initially I thought the director was a few mussels short of a seafood platter, but now R60m in profit no longer sounds that far fetched.
Apparently more efficiencies can be found at Premier, which bodes well for trading margins going forwards.
One should remember that the weaker rand will, to some extent, cushion Premier against any weakening in demand for its export lobster. Over the longer term I also reckon Sekunjalo's aquaculture venture (which could produce 200 to 250 tons of perlemoen in the short term) will add an extra kicker to bottom line - especially with the harvesting of wild abalone still prohibited.
Consolidation in fishing sector
Sekunjalo FD Khalid Abdulla pointed out at a presentation that Sekunjalo Industrial Holdings (which is primarily the fishing business) was accorded a carrying value of R320m.
The valuation of the fishing business - well down from last year's R550m - obviously takes into account weaker global economic conditions.
The R320m valuation placed on Sekunjalo's fishing business equates to around 65c/share - which is roughly the level at which Sekunjalo has been trading on the JSE for the past few months.
In other words buyers at 65c are paying for Premier Fishing and getting the rest of Sekunjalo for free.
Before we look at "the rest" of Sekunjalo, I would like to dwell on Premier Fishing a few paragraphs longer.
I don't think Sekunjalo would put a R320m price tag on Premier Fishing if the business were put up for sale.
I'm not saying Premier is for sale, but should a prospective purchaser emerge I reckon Sekunjalo would not be a desperate seller and would be willing to start haggling at around the R500m mark.
What I do firmly believe is that there will be consolidation in the local fishing sector, and that Premier - as a well established mid-sized player with valuable long term fishing rights - could become a much wooed asset.
Perhaps Premier could even become part of a larger listed entity with Sekunjalo retaining a strategic stake? Just something to think about?
Obviously with so much of Sekunjalo's value underpinned by fishing, one might easily dismiss "the rest" of the investment portfolio as iffy and insubstantial.
BT deal could be big
Outside fishing, the easiest value to quantify is in the informatics division, Sekunjalo Technology Solutions (STS). Abdulla has pegged STS at last year's value of R90m, equating to around 18c/share.
So STS, for which Sekunjalo has proposed a separate listing, represents a fairly chunky part of the group's stated NAV of 130c/share.
Based on operating profits of R15m in the year to end August for STS, it would seem the R90m valuation is hardly heady.
STS will also benefit in the new financial year from having Sekunjalo Health Care's HST division on board. The pending transfer of HST to STS looks, to me, like the real reason why Sekunjalo underwote a rights offer to take a controlling stake of 85% in the ailing health care business.
HST has recently secured some rather attractive state tenders that will lend considerable bulk to Sekunjalo's informatics division over the next five years.
I would tend to value Sekunjalo on fishing and informatics only at this point. After all it was thanks to the performances from fishing and informatics that Sekunjalo was sustained by operational cash flows (of R32m) for the first time in many a year.
Still, I'm not crazy about Sekunjalo Health Care and remain cautious around Bioclones (which is still punting an offshore listing despite being valued down to R150m). I note the financial services division pumped up revenue and reduced its bottom line loss. Sekunjalo executives expect both health and financial services to attain break-even in the financial year ahead - which would, in my opinion, be a "good result".
While the health care, biotechnology and financial services arms do perplex me somewhat, there are other interests that could "sexy" up Sekunjalo in the medium term.
The recent deal with the local arm of telecoms giant BT could potentially be big, while there is also the long awaited transfer of the valuable Siemens SA stake (currently housed in unlisted Sekunjalo Investment Holdings) to consider.
The bottom line is that - as much as it pains me to say it (after my previous scepticism) - Sekunjalo looks like it is presenting interesting value at current levels.
(More on Sekunjalo's biotechnology plans in the upcoming edition of Finweek)
- Fin24.com