Joffe’s got plenty of guts - all we need now is the glory

Business

Joffe’s got plenty of guts - all we need now is the glory

Investors in Long4Life trust the former Bidvest CEO can sprinkle some of his legendary magic dust

Chris Gilmour


Brian Joffe is one of the finest corporate entrepreneurs SA has produced. His gutsy approach to establishing Bidvest in the 1980s reflects this reality.
Now, with his latest brainchild, the leisure and lifestyle investment group Long4Life, he needs to convince the investment community that he will once again bring his magic touch to shareholder returns.
The share price has fallen by 36% since listing in April 2017, in line with the trend of most small caps, some of which are considering delisting in this rather horrid market. It is trading at a 20% discount to net asset value, which is the unfortunate norm for listed industrial conglomerates.
The August 2018 interim results are the first numbers since the JSE listing that reflect significant activity in the business. For the first time, investors can get a feel for the intrinsic nature of this lifestyle-oriented company.
According to Joffe, the group is only halfway through its anticipated acquisition programme. As things stand, Long4Life comprises three segments: sports & recreation; beverages; and personal care & wellness.
Within sport & recreation, foot traffic through stores held up well during the interim period, though basket sizes and values were flat. Trading profit in this division was R130m and trading margin was 14%.
Beverages’ revenue was R549m and with a trading profit of R58m, trading margin was 10.5%. Brands include the upmarket Fitch & Leedes mixers, Score energy drink, and Chateau Del Rei sparkling perle wine.
Personal care & wellness, which is represented by franchisor Sorbet, has the highest profit margin in the group, at 27%, and trading profit at R15m. Net profit exceeded budget by 50% and there appears to be strong franchisee interest, with growth only being limited by suitable site availability. In a typical salon, services which include facials, massages, manicures and pedicures account for 80% of revenue while products purchased account for 20%.
The group has R1bn of cash for acquisitions. According to its business philosophy, if a potential deal is not right, it walks away and won’t overpay. A case in point was the possible acquisition of fashion retailer Rage earlier this year. This very fast-growing chain, with almost 600 outlets, would have been the group’s largest acquisition. With a price tag of almost R4bn, it would have required all of Long4Life’s cash plus a lot of debt and the issuance of many more shares. According to Joffe, while Rage was considered an outstanding company, its cash conversion ratio was just too low, and the deal in progress was discarded.
In the middle of a recession, small cap stocks such as Long4Life find it difficult to attract investor interest, even with a brilliant founder like Joffe, who has an impeccable track record. But perhaps this is the time to take a closer look at this share, while all the economic pessimism swirls around. Joffe has been through too many economic cycles to get overly concerned about this particular downturn.

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