At Brait, Virgin Active is still on the up and New Look is getting worse (JSE: BAT)

But why is this trading update so hidden?

I’ve learnt the hard way on the market that it’s not a good idea to skip over any announcements, especially based on the trust you place in me each day to bring you Ghost Bites. I therefore looked at the Brait announcement regarding the repurchase of exchangeable bonds, even though it seemed like a pretty generic capital structure announcement at the outset.

Brait is sitting on a lot of cash after the Premier placement. They are therefore looking to reduce the number of exchangeable bonds in issue. In fact, they want to repurchase 17.8% of outstanding bonds, which is a lot! If not enough bonds are tendered by bondholders to reach R400 million, then Brait will declare a special dividend to bondholders of whatever the balance is.

With that out the way, I find it annoying to be honest that the announcement also includes a brief trading update. Yes, I’m glad I saw it, but there was no indication in the heading of the SENS announcement that it was in there. How many shareholders have therefore missed it?

The trading update is that Virgin Active is trading positively since the update to the market on 13 November, so the momentum in the gyms is solid. As for Premier, the interim performance (which was very good) has continued into the second half. Finally, New Look is struggling in the UK, with a 7.9% decrease in fashion retail sales in that market in November and New Look trading in line with the rest of the market.

They are talking about a “significant impact” on profitability of New Look in FY25 “before mitigating actions” – so you can expect New Look to become an even smaller percentage of the Brait NAV than it already is.

This isn’t a great read-through at all for other listed clothing groups that have been having a tough time in the UK recently. The Foschini Group (JSE: TFG) springs to mind.

NEPI Rockcastle acquires another mall in Poland (JSE: NRP)

They property sits in a high-income part of Poland

NEPI Rockcastle has pulled off another deal at this late stage in the year. They are acquiring 100% of Silesia City Center, as well as two companies that provide services for tenants in the property.

The mall is in Katowice in southern Poland, a city that NEPI notes has average spending power that is 35% higher than the national average on a per capita basis. That’s good news for a retail property! It also explains why the occupancy rate is up at 98.4%.

It’s a large deal, with a meaty ticket price of €405 million for the mall and an extra €1.5 million for the services companies. NEPI can fund this deal using the proceeds of the equity raise in October 2024.

They believe that the net operating income for the property and the two companies will stabilise at €32.3 million. The net initial yield for the acquisition is therefore 7.2%. The company that holds the property actually recorded a statutory loss for the 2023 financial year, with no further information on why that might be the case. I would expect debt to be a major contributing factor. It seems as though all the debt attached to the property is being settled as part of the €405 million purchase price.

This is a Category 2 transaction, so NEPI Rockcastle shareholders won’t be asked to vote.

RMB Holdings’ NAV has decreased – and not just because of special dividends (JSE: RMH)

Unlocking the value of the tail of this portfolio won’t be easy

For the longest time now, RMB Holdings (which has absolutely nothing to do with the bank anymore) has been talking about selling off its property exposure and returning the proceeds to shareholders. This tends to take far longer than most people expect, particularly when things aren’t so simple in this portfolio.

For example, one of the negative hits to the net asset value of RMB Holdings was the repurchase of the shares it held in underlying portfolio company Divercity. There aren’t exactly tons of buyers lining up for the stake, so RMB Holdings took a R37 million bath on that disposal.

They have also suffered a R77 million decrease in the carrying value of Atterbury, an asset that has been a bone of contention in the past couple of years. The relationship between RMB Holdings and the Atterbury board hasn’t exactly been smooth sailing, adding to the complexity of turning these investments into cash and then dividends.

For context to these numbers, special dividends during the period came to R428 million. The dividends were obviously the main reason why the net asset value fell from R1.449 billion as at September 2023 to R919 million as at September 2024, but those other factors certainly shouldn’t be ignored.

The net asset value per share excluding cash earmarked for a special dividend is 66 cents and the current share price is 42 cents.

Schroder European Real Estate’s total return is now slightly in the green (JSE: SCD)

The past two years haven’t been pleasant

In the year ended September 2023, Schroder European Real Estate produced a -5.0% total return (i.e. the dividend plus NAV move). Those hoping for a strong recovery have been somewhat disappointed, with a total return of just 0.4% for the year ended September 2024. This means that over two years, shareholders have lost money in nominal terms even before we think about inflation.

The reason for the pressure on the total return is that the net asset value (NAV) per share decreased from 128.2 euro cents as at September 2023 to 122.7 euro cents as at September 2024. The total dividend for the year was 5.92 euro cents.

The decrease in the NAV is thanks to valuation pressure in the first half of the year, with the fund not seeing a meaningful improvement in valuations in the second half despite the decreasing interest rates environment.

Although one would hope that the worst is now behind them, it’s worth noting that the French tax authorities are going ahead with a tax audit with potential exposure of €12.6 million excluding penalties. Although the group hasn’t raised a provision as they believe that it isn’t probable that they will need to pay more taxes, this is a big number. For context, earnings for the year ended September 2024 were €8.2 million!

Given everything that is going on in Europe right now, it just doesn’t feel to me that broad exposure to European property is a smart idea. There are pockets of excellence and some really strong operators out there, but the macro view is dicey.

Nibbles:

• Director dealings:
  • A member of the Saltzman family sold shares in Dis-Chem (JSE: DCP) worth around R20 million.
  • Acting through Titan Fincap Solutions this time, Dr. Christo Wiese has bought exchangeable bonds in Brait (JSE: BAT) to the value of R6.8 million. The nuance here is that whilst his recent purchases have generally been of the ordinary shares in Brait, this time he’s buying the exchangeable bonds which are different listed instruments.
  • The company secretary of Tiger Brands (JSE: TBS) received shares and sold the whole lot worth R1.8 million.
  • A director of a major subsidiary of PBT Group (JSE: PBG) bought shares worth R1.25 million.
  • A director of a major subsidiary of Stefanutti Stocks (JSE: SSK) purchased shares worth R98k.

• Capital & Regional (JSE: CRP) announced that the courts have sanctioned the scheme of arrangement for the cash and share offer by NewRiver REIT. This effectively gets the major remaining condition out of the way, with only a formality remaining. This is also important for Growthpoint (JSE: GRT) shareholders, as this deal gives Growthpoint exposure to a much more diversified UK portfolio than before.

• In case you’re keeping track, the Prosus (JSE: PRX) stake in Tencent is now down to 23.995%. They have been selling down that stake to fund the repurchase of shares, including in Naspers (JSE: NPN) as well.

• Europa Metals (JSE: EUZ) is currently suspended from trading on the London exchange as they are busy with a potential deal with Viridian Metals Ireland. There’s an odd regulatory loophole here, as the shares are not suspended from trading on the JSE. Either way, they are still working through the conditions precedent that were agreed to in the binding term sheet back in September. They are also in discussion with funding parties regarding the Tynagh project.

• There’s another change to the Murray & Roberts (JSE: MUR) board of directors. Independent non-executive director Alexandra Muller has resigned. I usually completely ignore changes to independent non-executive directors, but this is relevant given the current state of affairs at the group.