THE BOTTOM LINE
Talk in fashionable circles is that Brait needs a New Look
Entire R14.2bn stake in UK retailer was written off, but New Look still offers Brait investors hope of recovery
Brait, the investment holding company that lost its lustre over the last two years following its acquisition of British retailer New Look, appears to be on the road to recovery according to its most recent financial results.
New Look, acquired for R14.2bn over three years ago, has exacted a heavy toll on Brait. The company began writing down the value of its investment almost immediately after acquiring the business due to declining sales and margins, which forced Brait to write down the entire value of its investment.
While the company’s other three principal investments – the Virgin Active gym network, Premier Foods and UK budget food retailer Iceland Foods – all held up fairly well in tough trading conditions, it is New Look that offers the company a meaningful chance of recovering the 77% drop in Brait’s share price in the past two years.
Were Brait to be successful in lifting New Look’s value back to the $1.2bn it paid for it, the company’s net asset value would increase 60%. While New Look more than doubled its operating profit for the six months ending September, its sales continue to fall as the chain reduces the number of franchisee stores.
Even with declining sales, Brait has one more trick up its sleeve to increase after-tax profits at the retailer. After establishing a special-purpose vehicle in 2017 with Brait’s controlling shareholder, Christo Wiese, the firm managed to acquire 18% of New Look’s publicly traded bonds. According to one analyst, the company could convert the bonds to equity, thereby reducing New Look’s hefty finance charge, which might push it further into the black.
That would certainly be a welcome start for most shareholders.