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Brimstone optimistic despite devaluations impact - CEO

Aug 23 2017 19:25
Carin Smith

Mustaq Brey, CEO of Brimstone. (Supplied)

Company Data


Last traded 14
Change 0
% Change 0
Cumulative volume 8510
Market cap 0

Last Updated: 01/01/0001 at 12:00. Prices are delayed by 15 minutes. Source: McGregor BFA


Last traded 9
Change -2
% Change -16
Cumulative volume 7281
Market cap 0

Last Updated: 01/01/0001 at 12:00. Prices are delayed by 15 minutes. Source: McGregor BFA

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Cape Town - Brimstone Investment Corporation [JSE:BRT] announced on Wednesday that its interim results for the six months to end-June 2017 were impacted primarily by the downward valuation of investments.

This was reflected by share value adjustments; the share of profits of associates and joint ventures; and the relatively poor performance of the group’s subsidiaries Lion of Africa Insurance and House of Monatic.

Over the interim period Brimstone recorded a 27% rise in operating profit to R155.9m. The groups’ gross assets lifted from R7.7bn to R8.2bn, while intrinsic net asset value dropped from R5.1bn to R4.5bn.

CEO Mustaq Brey told Fin24 it has no doubt been a challenging period, mainly due to the big writedowns.

"All in all it has been a tough period, but from an operational point of view, we did not do badly. Lion of Africa and House of Monatic had a difficult six months, but we have already taken steps to address challenges. It is just that the SA economy is not in a good state at the moment," said Brey.

"The downward valuation of some of our investments was not entirely unexpected in this climate. I am optimistic that the cyclical nature of our investments will soon see the poor performers over this period move back into profitability and deliver increased value for our shareholders.”

The demise of Stuttafords impacted House of Monatic, for instance, because the retailer was one of its big customers. Furthermore, in tough economic times people would rather buy food and pay cellphone bills than buy clothing, Brey pointed out.

“Although Lion of Africa and House of Monatic delivered disappointing results, we have clearly identified the reasons behind the result. Lion of Africa has been eliminating unprofitable business which has put a strain on acquisition ratios, while House of Monatic has been affected by a muted clothing retail climate compounded by the liquidation of a large customer, Stuttafords,” explained Brey.

Fishing industry

As for Brimstone's investments in Sea Harvest [JSE:SHG] and Oceana, Brey said they are both diversifying and Brimstone still sees the fishing industry as a good sector to be invested in. In 2020 a large number of its fishing licences are coming up for renewal and Brey said as Brimstone is one of the biggest employers on the West Coast, he is hopeful about renewal.

A highlight for Brey during the six-month period was the unbundling of Sea Harvest, despite the current economic climate.

Executive chair Fred Robertson added that Brimstone’s Sea Harvest subsidiary has performed remarkably well after its successful listing on the JSE earlier this year. Sea Harvest increased headline earnings by 217% over the six-month period, from R34.9m to R110.6m.
Brimstone received R20.7m in dividends from Oceana during the period and recorded R18.9m in equity accounted earnings. However Oceana, in which Brimstone holds a 17% stake, recorded a drop in non-distributable reserves largely attributable to the decrease in its foreign currency translation and cash flow hedging reserves.

Brimstone’s investments in Equities, Long4Life and Phuthuma Nathi performed well over the six months. Equities were revalued upwards by R46.1m to R597.4m while Long4Life’s investment was revalued upwards by R44m to R244m. Phuthuma Nathi was revalued upwards by R43.5m to R663.4m and has recommended a dividend payable in September amounting to R91.3m in dividends for Brimstone, subject to shareholder approval.

The future

Going forward, Brey said the issue for Brimstone will still be about valuations.

"But we are patient and just carry on and are happy to support our underlying businesses," said Brey.

As for Robertson, he is confident that Brimstone's long-term investment vision and the group’s focused management allow it to make positive interventions when required.

"We will continue to deliver tangible value and profit for our shareholders,” said Robertson.

High unemployment levels in SA are of concern to Brey. The House of Monatic, for instance, employs about 800 people. That is why the company does not have plans to close it.

"We are always trying to employ more and more people in our own little way. For instance, we have started our own small internal audit team. I believe creating employment at the bottom end of the market is much easier. We must get the economy going from the bottom up, where ever we can. Skills development is needed," said Brey.

T20 withdrawal

As for Brimstone's withdrawal earlier in August from the Stellenbosch (Boland region) franchise in T20 Global League cricket, Brey told Fin24 that when the company was invited to take part a few months ago, it had to pay a deposit to be registered and obtain further information.

"From the beginning we made it clear that, if we decided to take part, it would only be as part of a consortium. Once we got the numbers, our investment team looked to see if it would be financially viable. Once we saw the numbers and our investment team made some projections, we decided not to take part," said Brey.

"Maybe it is viable for some other investors, like the world players with different risk profiles. I do not know all about this area, but we are more conservative than some of these world players. I have to do what is right for my shareholders," said Brey.

Asked if Brimstone's decision not to take part any more had anything to do with past Gupta (Sahara) involvement in SA cricket - for instance sponsorships - Brey emphasised that he does not know much about these allegations, only what he has read on the internet.

"We did not withdraw because of any possible Gupta link. Our basis for withdrawal was the numbers and we made a financial decision on business principles," he said.

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