Pepkor exit may boost Brait

Johannesburg - Shareholders in JSE-listed private equity group Brait [JSE:BAT] may be in for a potential fillip as the group mulls an exit from its investment in retail group Pepkor.
 
Pepkor, which was delisted in 2003 as part of a R2bn private equity transaction, makes up about 39% of Brait's private equity portfolio and is the group's largest investment.
 
Established in 1965, Pepkor manages a portfolio of retail interests in 10 different countries. Brands include Ackermans, Pep and Best & Less.
 
Brait recently delivered interim results for the six months to the end of September. For the period, headline earnings were up 50% to R116m while net asset value rose 1% to 1 331c. The results were boosted by the partial realisation of a stake in tourism group Wilderness Holdings, which recently listed on the JSE Africa board.
 
One option open to a private equity investor is to relist the stock on the exchange.
 
In a note to clients, BOE Private Client analyst Peter Wille said Brait is well positioned operationally, adding: "We expect an exit from Pepkor in the near future and this could unlock some value."
 
Wille maintained his "hold" recommendation on the stock, saying that investors needed to keep a close eye on fundraising taking place in the newest Brait Fund (Fund V): "This is a key area to watch as the eventual size of Fund V will be a key determinant for Brait's profits for the next few years."
 
This gives further impetus to the statement from management in the 2010 annual report, which said that "almost 65% of the R1 585m as at March 31 2010 is invested in mature assets that should be realised in the next six to 18 months.

"This is indicative of a strong statement of financial position that should see significant cash inflows in the near future."
 
Stockbrokerage Imara SP Reid retained its "add" recommendation on the stock, saying: "Although management contains (sic) to caution about the possibility of reduced profitability as a result of the fund-to-fund cycle gap, the performance of the Brait III and Brait IV funds and the initial commitment of almost a billion towards Brait V is very encouraging, although raising funds is likely to remain a challenge in the current operating environment."
 
Stockbrokerage Barnard Jacobs Mellet (BJM)  pointed to the 7% dividend yield as a reason for holding the stock.

"We maintain exposure in our high dividend yield portfolio and would be accumulating into weakness," the firm advised clients.
 
Brait has been a solid performer over the last year. In November 2009 the stock was trading at around 1 762 cents per share and has subsequently risen to trade at around 2 450c/share. This leaves the stock trading on a price to earnings multiple of around 12 times earnings and a dividend yield of 6.6%.

 - Fin24

* The writer holds shares in Brait.