*This article first appeared in Forbes Africa. Subscribe today by emailing Lieria Boshoff:subscribe@abn360.com or visit www.forbesafrica.com
It was a gloomy winter’s day outside the domed Good Hope
Centre in the heart of Cape Town. Table Mountain peeped through the
clouds and a slight drizzle pattered gently against the concrete roof.
It was July 18, 1998, the day that saw the money of poor people stand
shoulder-to-shoulder with the rich. A day the dream of turning $840,000
into $628 million took root.
This was the moment when Brimstone Investments listed on
Africa’s largest bourse the Johannesburg Stock Exchange (JSE). It
carried the hope of small shop owners, fishermen and teachers who had
put their life savings on the line.
“It was early days at the Good Hope Centre, which is at
the foot of District Six, what was then called the Fruit and Veg Market.
We had this view we were taking the people to a different kind of
market, the market of high finance,” chuckles Fred Robertson, executive
chairman of Brimstone Investments.
Many of the thousand shareholders that gathered ran the
same streets as Robertson. The future entrepreneur and millionaire sold
newspapers, apples and
popcorn in cinemas in District Six. The company’s
choice of District Six was, as the launch pad for wealth for the
people, no accident – rather an unspoken statement. In the 1970s, the
apartheid authorities moved Robertson and 60,000 of his neighbors to
make way for white residents.
“You must remember there were forced removals across the
country, not only in District Six. But we were thrown across this piece
of wasteland called the Cape Flats. Families were taken apart. Friends
and neighbors were all thrown. We were a family of nine children. My
sisters were in different townships. Our family started disintegrating
at the time,” says Robertson.
All this was a distant, if painful, memory as the
shareholders in the Good Hope Centre stood nervously staring at two
large computer screens as they flickered into life. Most knew little
about the shares their money had bought. They were a cross section from
the margins of Cape Town: the sort of people who walked to work with
little money to spare.
This listing was also proof of the promises from
Robertson, a former teacher, and his partners Mustaq Brey, a self-taught
chartered account from Wynberg, and Lawrie Brozin, another chartered
accountant who joined the company from his family business in Illovo,
Johannesburg; three men, three worlds, three religions; one fear shared
with their shareholders – a loss.
“We are talking about a community that was previously
disadvantaged that didn’t know about stocks. We listed at R4 ($1.12) and
came off at about R6 ($1.68),” says Brey.
“Life was good then, hey?” laughs Brozin.
Since that soggy day in July 1998, the investment
company has gone from strength to strength. Brimstone these days claims
assets worth $628 million, with an intrinsic net asset value (INAV) of
R17,09 ($1.48 in 2015) a share, a far cry from R4 ($1.12 in 1994) on
day one at the JSE.
After 20 years of investment, the group employs around
3,300 and has 16,000 subsidiaries. Its associates are among the biggest
names in Africa: Life Healthcare, Oceana, Sea Harvest, Lion of Africa
Insurance, Old Mutual, Nedbank, Tiger Brands, Grindrod Limited, The
Scientific Group, House of Monatic, Taste Holdings, Afena Capital and
Rex Trueform.
Chili Poppers
The Brimstone trio reflect on leaner times in their humble offices at the back of Newlands cricket ground on a brighter day. Around the boardroom table the mood is easy. In between questions, at least one of the three will reach out to snap up a steaming spring roll or a chili popper, made by Brey’s sister Bibi.
The Brimstone trio reflect on leaner times in their humble offices at the back of Newlands cricket ground on a brighter day. Around the boardroom table the mood is easy. In between questions, at least one of the three will reach out to snap up a steaming spring roll or a chili popper, made by Brey’s sister Bibi.
“Your sister is the best cook, I am telling you now,” says Brozin to Brey.
Bibi’s spicy titbits are a small reminder of how
everything, as Leonardo da Vinci said, is connected to everything else.
In 1994, Bibi, along with her chili poppers, was at the first Brimstone
shareholder meeting in the small Newlands Grounds South Room, a stone’s
throw from this boardroom.
“We called in a whole lot of people together and
explained to them what we wanted to do. The meals we ordered where from
Bibi, she then brought us a bill the next morning,” says Robertson.
“For R5,000 ($1,400),” says Brey, ever the accountant.
“And we then gave her a share certificate,” says Robertson.
“I then said ‘you owe me another R12,500 ($3,503)’. She
said ‘I owe you money?’ And I said ‘yes’. She ended up paying the extra
money and landed up with 5,000 shares,” says Brey.
“Six thousand seven hundred and fifty shares [in total],” corrects Robertson.
Back in 1994, it wasn’t just the chilies that were
inviting. In that year, the shareholders spotted their first hot deal.
They called it the Oceana deal: a 9.73% stake in Oceana Group, a
collection of operating subsidiaries in the fishing and cold storage
industries along South Africa’s west coast.
“The bank told us they would give us a loan of R4
million ($1.1 million). We had to raise another R3 million ($842,000) in
six weeks. We went door to door. I even remember organizing a bond on
the one shareholders house to get some money,” says Brey.
“At the time you were starting a company. It’s not like
you were buying a company. It was an idea. You were backing guys,” says
Brozin.
By 1995, the deal was done; the first drop in an ocean
of investments that was to make more than a few waves. Word spread to
the ear of former head of state Nelson Mandela.
“Mandela was one of our first shareholders. He paid for
shares, like everybody else paid for shares. He saw it in the newspaper
and then called us to the presidency and said he also would like to
invest, like everybody else. And we said ‘yes of course,’” says
Robertson.
“He bought 240,000 shares with a cheque of R300,000 ($85,000),” says Brey.
Foul Weather On The Horizon
It was not all fair winds and flowing seas. Storm clouds loomed over the horizon as foul weather threatened to sink Brimstone.
It was not all fair winds and flowing seas. Storm clouds loomed over the horizon as foul weather threatened to sink Brimstone.
“In 1995/96 it was the start of a huge boom in the stock
market. South Africa was in a fantastic space. Everyone was listing. We
used my house as an office in Illovo, a study at the bottom. We had
cigars and whiskey. It was just such a crazy time. We became quite
substantial after about a year because the market carried us. Then the
music stopped,” says Brozin.
The financial storm hit in August 1997.
“The world financial markets were in turmoil. At the
listing time it had been up to R6 ($1.68). Our INAV, if you did a
calculation of what our values were, it was then R2.50 ($0.35) at that
stage,” says Brey.
By 1998, Brimstone’s share price almost hit the seabed.
“Then the vultures came out and said they wanted to buy
us out. They told us we could make R150 million… A financial group in
Johannesburg came to us and said why don’t we delist Brimstone, buy the
shareholders out at current market price. Buy them out at a rand. Sell
all the assets and then make R1.50 profit,” says Brey.
“But we said we don’t want to leave Cape Town. We’ve
taken money from the people from the [Cape] flats; we’d have had to run
out of Cape Town if word got out that we’d do something like that. It
was unethical. What we then decided to do was sell off all liquid or
listed stocks, the easily sellable stuff. Turn that R1.50 and give back
capital of R1.50 to our shareholders. Our shareholders liked it, but the
market didn’t. Our price went down to about 20 cents ($0.03) in October
2001,” he says.
“The lowest of the low our share was 18 cents,” says Brozin.
In those days, you couldn’t even buy chewing gum for that.
Brimstone weathered the storm. In 2003, it doubled its
stake in Sea Harvest to 61.44%, one of the largest hake producers along
the west coast – its gross value in 2014 was at just over R557 million
($52 million). The waters appeared to have calmed and the shares rose
with acquisitions into Old Mutual (now at $22.4 million), Nedbank (now
at $47.5 million), Life Healthcare (now at $202 million) and Oceana (now
at $162 million).
Five years later, another whirlwind hit. This time it
was the 2008 global financial crisis, in which the whole world got
soaked. Companies floundered after the United States (US) property
bubble burst. Sub-prime mortgage-backed securities on US property price
estimates crashed. The knock on effect hit Cape Town with a vengeance.
Brimstone’s headline earnings went from just over R752 million ($69.9
million) in 2007, to a headline loss of about R77 million ($7.1 million)
in 2008.
“Looking back over the past year, it was a period that
brought some extraordinary challenges. The turbulent and perhaps up to
this point, unprecedented deterioration of the global financial market,
has and will for the foreseeable future continue to impact on economies,
businesses and ordinary people across the developed and developing
world. Like many other companies, Brimstone has not escaped the effects
of the negative market,” wrote Jakes Gerwel, former Director-General of
the Presidency when Mandela was in office and the Non-Executive Chairman
of Brimstone in 2008.
By the end of 2008, Brimstone’s net asset value had declined to $204 million, an erosion of 7.7%.
Turning Point – Life HealthcareJoy
came in the morning. To the rescue was a lifesaver in more ways than
just the name. The Life Healthcare deal, struck in 2005, matured in 2010
just in time to save the company.
“Life Healthcare issued almost double equity on our
shares. In June 2010, we unbundled Life Healthcare and created
significant wealth for our shareholders,” says Robertson.
The unbundling threw off the recession and stabilided
Brimstone’s name in the investment business. It was a good time to be in
the South African private healthcare market with a growing and aging
middle class and a cash strapped public sector healthcare system.
These days, Brimstone’s 5.04% share in the private
hospital operator is valued at over $202 million. It’s an important part
of the $628-million company. Brimstone’s share price now sits at R17
per share, a far cry from the dark days of 2008 and 18 cents.
So, does the trio think that their shares are undervalued or overpriced on the JSE?
“We’ve always been selling at a discount. We trade at
about a 20 per cent discount. You will see most investment holding
companies will trade at this,” says Robertson.
In the last year, the company has been busy. It sold its
shares in diagnostics group, The Scientific Group, to Ascendis in a
deal worth R284 million ($26.7 million). It also completed a R1.6
billion ($151 million) transaction giving it an 8.4% share of Grindrod,
the South African-based freight holdings company.
“Over the past 10 years, Brimstone has delivered an
annual total return of over 40 per cent to investors. Over the past
year, Brimstone’s exposure to the fishing industry in particular,
through Oceana Group and Sea Harvest, as well as its investment in Tiger
Brands, have boosted its performance. The underlying assets offer
investors the opportunity to get exposure to unlisted companies with
good earnings growth. As the company is relatively closely held by
investors, with a small free float, liquidity is an issue for new
entrants,” says Mia Kruger, director, equity analyst and portfolio
manager at Kruger International.
“Grindrod has been in existence in Africa for over 100
years. The infrastructure sector which we are busy with at the moment is
exceptional. Grindrod, in Mozambique, is doing well with port and
rail,” says Brey.
Other investments include the purchase of a R125 million
($11.7 million) fishing trawler from Norway called The Harvest Atlantic
Peace that works for Sea Harvest out of Saldanha Bay, 120 kilometers
north of Cape Town.
“She is, touch wood, fishing absolutely phenomenally.
[Sea Harvest] certainly is one of the biggest economic drivers along the
west coast. I think people underestimate the importance of Sea Harvest.
In Saldanha, we must be the biggest consumers of electricity; pay the
most taxes; pay the most rates and employ the most people. Again, the
knock-on effect from that is an economic driver along there and it keeps
hundreds of small shops open,” says Robertson.
A study by the University of Cape Town concluded that
this single business was the largest economic driver along the West
Coast of South Africa. It employs 2,800 people with the majority 77%
female.
Largest AGM In Africa
Brimstone’s ticket to billions lies in the hands of hundreds of shareholder’s homes across Cape Town. Most of them are working people; one reason why Brimstone holds its AGMs after hours.
Brimstone’s ticket to billions lies in the hands of hundreds of shareholder’s homes across Cape Town. Most of them are working people; one reason why Brimstone holds its AGMs after hours.
“In the early days, we had one shareholders meeting in
the day. People came up to us and said ‘are you going to pay me for my
day I am not going to work?’ We’ve learned that part of setting up
Brimstone and developing Brimstone was we had a new wave of
shareholders, who had never invested in the market before. Shareholders
for the first time got shares in a listed company. We had to educate
them. I think more of this should have been done in the country to be
honest,” says Brey.
“I’ve learned from Brimstone that one takes for granted
that you have a stockbroker, you go and buy a share and all is well. But
that isn’t the way life works for the shareholder we have. They don’t
know what a share is; they don’t know what a share certificate is; they
don’t know what a CSDP [Competitive Supplier Development Programme] is.
It’s very confusing. We’ve been very accommodating and I don’t think
there is a company today that actually manages that process for our
shareholders,” says Brozin.
“Three hundred people come to our AGMs. It’s one of the
biggest in the country. I think you can’t go on doing business as usual,
offered to us in our new democracy. You couldn’t do this before,” says
Robertson.
Empowering the previously disadvantaged remains a core aspect to Brimstone’s success.
“They are saying today one percent of the world’s
population owns half of the world’s wealth. That’s why we have some of
the issues we have got today,” says Brozin.
“People say [black economic empowerment (BEE)] is dead. I
don’t believe that. I believe it’s very much alive. We are going to
have to do much more of it if we are going to get this country into the
right economic shape that it should be in… We are going to have to
rethink in this country for its own good how we’re going to do BEE going
forward. It’s going to have to cascade more and go broader.”
When it comes to Africa investing in Africa, they say it’s simple.
“The people of Africa should have more stakes in those
businesses than what they have ever had before. That also counts for any
region you invest in. You can’t go in and just do business and not
employ the people there and not leave the profits behind. You have to
leave the country in a better place than what you started in,” says
Robertson.
Almost 20 years to the day, it’s a fair walk on a gusty
summer’s day as the trio trudge into the wind up Signal Hill. A former
teacher and two accountants, who turned an idea into an investment
company, look down the valley beneath Table Mountain. In the hazy
distance is District Six, the former home of Robertson. It’s one of the
only parts of Cape Town that has been left fallow. This is land
Robertson and his 60,000 neighbors are claiming back.
“It was our home after all,” says Robertson.
As the sea crashes onto the Cape Town shore, the sound
is another reminder of yet another analogy that even the sturdiest
vessels and plans can be wrecked by a freak storm. Just ask Brimstone.
*Currencies calculated according to Rand/Dollar exchange in relevant year
No comments:
Post a Comment