HCI and Brimstone offload property and shares respectively

Two enduring but indebted empowerment investment companies — Hosken Consolidated Investments (HCI) and Brimstone Investment Corp, both lumbered with cynically deep discounts to intrinsic NAV — took significant steps to lubricate the gearing grind last week.

The market hardly gave the most resounding round of applause, but I sincerely hope both transactions are the first determined steps to unlock heaps of value in the foreseeable future.

HCI, rather surprisingly, announced the sale of the well-known Point Building in Sea Point, which also serves as the group’s head office. More surprising, though, was the price tag of R943m, which equates to a chunky 8% of HCI’s current market value. HCI owns about 70% of the building via subsidiary Permasolve, so its share of the gross sale proceeds reduces to around R660m.

Still, the sale announcement discloses that at the end of September the value of the net assets attributable to the property was R188m and the profits after tax attributable were R5.5m over six months. At face value that would seem an incredible offloading of a noncore asset by HCI.

I noticed the buyer was Steven Gottschalk, whom readers might remember as the prime mover of the once JSE-listed logistics specialist Value Group. I somehow doubt he would be in the habit of overpaying for a property. What needs to be factored in when assessing the transaction is that the building — which cost a pretty penny to renovate — was geared to the gills. So after debt is settled it seems HCI will receive about R483m from the gross sale proceeds, but with tax factored in, it might bank about R350m.

It’s still a very good outcome for HCI, and hopefully sets a benchmark for more property deals. It’s perhaps worth recalling comments made by HCI CEO Johnny Copelyn at this year’s AGM. He reckoned the group’s sprawling property portfolio could bring in meaningful proceeds, with declining interest rates opening a window to sell. Then there was his remark that “if you’re looking for billions of rand to come into HCI, the most obvious asset to focus on is the hotels”.

HCI owns about 45% of Southern Sun, which he advised was sufficient for a potential investor to take control of “by far the biggest and best hotel group in the country”.

I doubt such a development is imminent, but further property sales by HCI probably are.

It would seem that Sea Harvest will become Brimstone’s key asset.

It might have been a begrudging letting-go by Brimstone to release 11.95-million shares in fishing group Oceana at R53 a share. In 2015 Brimstone followed its rights in Oceana’s fundraiser to pay for the purchase of US-based Daybrook — taking up 2.8-million shares at R75 each. In 2019 Brimstone took another 8-million shares in Oceana at R69.30 a share.

The latest sale of Oceana shares, to another empowerment company, Marine Edge Capital, reduces Brimstone’s stake from about 25% to 16%. Despite the low price sale, it does bring in a much-needed R633m of fresh capital. This should bring debt closer to the R1.1bn mark, which is still outsized measured against Brimstone’s market value (rather than its NAV) but much more manageable if more Oceana shares are sold over the medium term, along with selected bits from the periphery of the portfolio. For the record, Brimstone’s remaining stake in Oceana is worth about R1.1bn today.

It would seem that Sea Harvest — the hake fishing specialist with, these days, other lines in the water — will become Brimstone’s key asset, and one that will surely be recommended by shareholders as a candidate for unbundling as soon as central debt is expunged. That, by the way, might leave the unlisted FPG Property and FPG Investments — collectively valued at about R476m — as Brimstone’s biggest investment.

Both, I might add, are very interesting ventures … though these might not be enough to sustain a JSE listing in the current format.

Source; Financial Mail – Marc Hasenfuss