Brian Joffe, CEO of investment group Long4Life, says the expression of interest the company received from a local entity didn’t come as a surprise because listed companies with a small market capitalisation have been undervalued.
Long4Life, which owns retail brands such as Sportsmans Warehouse, Outdoor Warehouse, personal care company Sorbet, and Chill Beverages — whose brands include Score and Fitch & Leeds — announced on Thursday that it had received an unsolicited offer for the entire business and that Joffe will step down in February to take on the role of chair.
“Small-cap shares in SA have really been undervalued and I suppose it’s opportunistic for those seeking value to make these kinds of approaches. So [the expression of interest] does not surprise us. There are no proper valuations for small businesses,” he said.
He added that the lack of rating limited the group in the acquisitions it can look at. “We always felt there was a better value for Long4Life,” he said.
The 74-year-old is one of the most prominent business figures in SA, best known for turning investment group Bidvest into a conglomerate providing financial services, car retail, branded consumer products and freight services.
Joffe started Long4Life five years ago and listed it in 2017, making a number of acquisitions.
“We spent time strategically repositioning the businesses and we were hoping for growth — then came the pandemic. But we are now in a situation where the opportunities are starting to look much more promising as the market is starting to change,” said Joffe.
Chris Gilmour, independent investment analyst with Salmour Research, said Long4Life brands
have “great prospects but need to be in an unlisted form. It will take time for these businesses to mature and they don’t need capricious shareholders in the meantime.”
In June, Long4Life announced the review of its structure to unlock value for shareholders. The review may result in the unbundling of Sportsmans Warehouse and Outdoor Warehouse into a separate entity. The company said on Thursday that the process is still ongoing.
Jan Meintjes, portfolio manager at Denker Capital, said the retail businesses are the most attractive assets. “I think the rest of the portfolio is too small and possibly not cash-flow rich enough to warrant a listing on their own.”
The sport and recreation division’s revenue of R1.1bn for the six months to August 2021 was up 2% on the 2019 period. The company said comparison with 2020 performance is not meaningful given that most of the businesses were hit hard by the lockdowns.
During the half-year to August, the businesses were affected by the curtailment of team and school sports, but this was mitigated to some degree by increased revenues in home gym equipment and running and cycling gear, with continued growth in online sales, Long4Life said.
In the six months to August 2020, the sport and recreation division reported revenue of R827m.
The beverages division revenue was R630m, 4% lower than the 2019 period as a direct result of the alcohol restrictions that hampered volumes at Inhle Beverages, which produces beverages for other companies. In 2020, revenue from the division was R501m.
Sales at the personal care and wellness division were R152m, up 12% on 2019. In the six months to August 2020, sales were R93.3m. The division consists of Clayton Care, which has acute hospital and rehabilitation centres as well as a frail care facility; and Sorbet.
Meintjes said some brands in the beverage business will be attractive to a food and beverage business. “I think the beverage business and personal care has a lot of room to further recover from the impacts of the trading restrictions brought on by the pandemic. This will be the main growth driver over the medium term,” he said.
Group revenue for the half-year to August was R1.9bn, in line with 2019, and trading profit of R214m exceeded the 2019 period by 6%. In the six months to August 2020, trading profit was R49m. The group declared a dividend of 10c a share.
We invested in lifestyle and leisure and that is where we are going to continue to focus. We are not looking to change the direction
Long4Life is also affected by unprecedented worldwide supply chain constraints, which are affecting the delivery of imported products.
Joffe said this is out of Long4Life’s control, but to manage the situation the group increased its inventory in anticipation of the delays and also invested in local production, which he expects will “help us a lot in a short-to-medium term”.
Asked if the company will pass costs on to consumers, Joffe said: “We are uncertain about that. We already have weak consumer demand.”
Commenting on his decision to step down and become the company’s chair from February next year, Joffe said his will be more of a strategic role.
Current chair Graham Dempster will become Joffe’s deputy.
Joffe said: “We invested in lifestyle and leisure and that is where we are going to continue to focus. We are not looking to change the direction. We are looking to spend money on marketing our activities and making our offerings more available all over the country.”
Long4Life's capital expenditure for the second half of its 2022 financial year is R109m.
It plans to open more Sportsmans Warehouse stores outside big cities and also “bulk up” in the acute and rehabilitation hospital industry, Joffe said.
Gilmour described Joffe’s stepping down as a “great move. It signals to the market that Long4Life is being sold and probably delisted.”
