Taking on a T-Rex

2011-05-26 00:00

Brimstone Investment Corporation [JSE:BRT] is one of only a few listed black empowerment companies that can boast about significant successes in unlocking value for shareholders. Though recently Brimstone banked a good chunk of profit and effected a successful (partial) unbundling in Life Healthcare Group Holdings [JSE:LHC], let’s not forget the nice profit turn made on selling Lenco Packaging (to Mondi) a few years ago.

Of course, some shareholders might wish Brimstone had never sold out of chicken eatery Nando’s more than a decade ago – but that was actually a deal that revitalised the company after the struggle years that followed the late Nineties’ listings blowout.

The question now for Brimstone shareholders is where next to unlock value? There are the “highly leveraged but protected” option agreements (Oceana, Nedbank and Old Mutual) that might be perceived as “impermanent” but for the most part Brimstone’s main portfolio looks settled.

The stake in Aon has been sold, but it’s highly doubtful Brimstone will be selling off or listing core “operational” investments such as short-term insurer Lion of Africa or fishing group Sea Harvest anytime soon.

While Brimstone’s annual report stresses holding a long-term view on investments, the group (as Finweek has argued before) might be feeling a little itchy about its investment in fashion retailer Rex Trueform. Both chairman (Jakes Gerwel) and CEO (Mustaq Brey) noted in their respective reviews value unlocking opportunities at RexTru remained “a challenge”.

Brimstone has traditionally rolled up its sleeves and got stuck into its investments in a bid to hone strategies and use its strong empowerment credentials to hopefully drum up new business. It’s apparent with RexTru that Brimstone has very little (if any) input, with it having no board representation despite holding the biggest economic stake in the company.

Finweek’s unsure what will transpire with Brimstone and RexTru – but something has to give, sooner rather than later. Rex Trueform Clothing Company [JSE:RTO] is a real corporate dinosaur – artificially controlled by the Shub family through African & Overseas Enterprises, which itself is protected by an N-share structure. Brimstone probably realises tilting at such archaic pyramids can be a fruitless exercise, especially considering the underlying stake is – according to the annual report – only worth R83m.

However, there’s some incentive to take on this T-Rex. The R83m valuation could easily be transformed to R150m if RexTru’s cash was perhaps mobilised for growth opportunities and not simply shored up as defensive cover.