| Sun 20 Apr 2003, 11:28 | | Back to BASICS |
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Streamlined Brait is leaner, meaner and ready for action at the start of its financial year, writes Richard Stovin-Bradford
Brait has once again become Brait. Following a year in which it handed back its banking licence, streamlined its operations and excised layers of cost from its operations, it has returned to its specialisation in private equity, advisory services and alternative fund management.
Chastened by its investment banking experiment, Brait has regrouped around its original skills sets and, though it has not yet shed its costly listing, looks to be set fair as it starts its new financial year in leaner shape.
Following his engineering of Brait's makeover, chief executive Antony Ball can at last contemplate his own return to a private equity focus. "I expect to become a part-time CEO and I'm looking forward to spending more time on private equity investments."
Brait has retained its top-tier private equity reputation and can still write a bigger private equity cheque than most local banks.
"I'm confident that our advisory business, which targets entrepreneurially managed companies, will soon become top-tier too," says Ball.
The advisory area comprises corporate finance, deal structuring and execution (incorporating Brait's legal team) and debt structuring (including securitisation).
Brait will release its results for the year to March during May but seized the opportunity this week to contextualise its results.
It said losses would be in line with forecasts, dispelling concerns that the hedge on its capital (about half of which is held in dollars) and on its local balance sheet might distort the final result more than expected.
At the beginning of its financial year, the dollar stood at R11.34. But the rand had appreciated to R7.86 by the end of the year.
Confirmation that its results would be in line with analysts' forecasts should ensure a soft landing in May. The I-Net consensus loss a share forecast stands at 206.3c.
Apart from currency effects, Brait's results will also be hit by the final costs of withdrawing from banking activities and tough market conditions.
Investors were warned of this at the interim stage, when Brait said it expected earnings to be significantly lower.
As part of its drive to refocus on its traditional business, Brait has sold its ipac fund manager to management.
By the same token, it might make sense for it to exit its African Alliance investment to complete the disposal of non-core businesses. Analysts would prefer Brait to concentrate on investing in businesses over which it can exert influence and ensure good governance.
But Brait's exit from banking liberates capital associated with that business. Shareholders can look forward to a series of three special dividends in the coming year of up to $0.30 a share.
No conventional dividend will be declared, but the reshaping of the group has brought greater certainty to its cost base and capital needs, so when dividend declarations are resumed in future they are likely to be covered around three times by earnings.
Ball says Brait will change its reporting currency to dollars to reflect the currency of its source of funds and of the substance of its underlying business.
Brait has funds under management of $650-million.
Investments in its second private equity fund, SAPEF II, which raised $150-million from mainly North American investors, are being realised. It achieved an internal rate of return of more than 30% in dollar terms.
Ball says Brait's third fund, SAPEF III, with $409-million under management, is about 60% invested in 11 deals and showing encouraging returns, giving confidence for fundraising to commence on SAPEF IV next April.
Of the private equity market, Ball says: "The capital markets are pretty quiet, but we sense there's a lot more underlying deal activity emerging."
In a move that should please shareholders because it aligns the interests of Brait's top team (with the exception of Ball) with their own, the top team has been asked to sign up to a new executive share incentive scheme.
The current share option scheme will be ditched in favour of direct equity ownership for the inner sanctum of 11 directors, who will cough up from their own resources for a proportion of the shares. Remaining staff will also be offered options.
With Brait better adjusted to weather current market conditions, its next step is bound to entail embracing an empowerment partner.
