Ethos Capital results for the year ended 30 June 2020
EPE Capital Partners Ltd (Ethos Capital) is an investment company, registered and incorporated in Mauritius as a public company. It is listed on the Johannesburg Stock Exchange and offers shareholders long-term capital appreciation by making commitments and investments into funds or co-investments that are managed by Ethos Private Equity, providing the company with largely indirect exposure to a diversified portfolio of unlisted private equity type investments.
Key highlights
– R0.75 billion fully underwritten rights issue and R0.7 billion loan facility concluded.
– R1.3 billion invested during the year, including investment in Brait.
– R1.9 billion carrying value of invested capital and total assets, with exposure to 22 portfolio companies.
– NAVPS at 30 June 2020 of R6.65, at Brait’s share price.
– The equivalent NAVPS that is based on Brait’s last reported NAVPS (at 31 March 2020), is R9.12.
Overview
2020 has been a year of two halves – both challenging – but for different reasons. The economic outlook in South Africa faced significant structural and growth impediments during the first part of the year. Consumer sentiment and business confidence remained at multi-decade lows, GDP growth rates continued to be significantly below market expectations and unexpected load shedding further influenced confidence.
With that backdrop, Ethos Capital achieved a steady performance during the first part of the year to February 2020, evidenced by increased valuations on key portfolio companies. It completed a R700 million loan facility and a R750 million fully underwritten rights issue in February 2020, with the proceeds used to fund a R1.03 billion investment into Brait SE (Brait) for an effective 9.8% stake. A further R0.24 billion was invested into existing investments, bringing invested capital to R2.7 billion. In March 2020, Ethos was appointed as the advisor to the Brait board which has adopted a strategy of realising value from its existing investments. Since Ethos took over, Brait has sold two of its six portfolio companies and realised over R3.0 billion.
Performance during the second part of the year was significantly impacted by the unprecedented outbreak of the Covid-19 pandemic. Lockdowns imposed by governments have curtailed consumer spend, significantly reduced production capacity and output and resulted in the largest global contraction in GDP.
With 18 out of the 22 portfolio companies being closed during the lockdown, the unlisted portfolio’s short-term profitability was severely impacted and the peer group multiples on which their valuations are based declined significantly, resulting in the implied EV/maintainable EBITDA valuation multiple decreasing to 7.0x (30 June 2019: 7.5x). Furthermore, the share prices of the listed portfolio, consisting of Brait and MTN Zakhele Futhi, reduced by 58% and 23% over the latter part of the year.
At 30 June 2020, Ethos Capital’s reported NAVPS, which is based on the respective listed investments’ share prices at 30 June 2020, was R6.65 per share.
The equivalent NAVPS that is based on Brait’s last reported NAVPS at 31 March 2020, is R9.12.
The impact of Covid-19 is likely to be felt for some time. The board believes that it is unlikely that there will be a material improvement in the macroeconomic outlook for South Africa in the next 12 months. The pandemic has resulted in a significant refocus on operational efficiencies at all of the portfolio companies which is likely to benefit these companies when the macroeconomic outlook improves.
Reach Africa’s private equity community by publishing a Showcase Article, Job Opportunity or Event on Africa Private Equity News. Contact us at editor@africaprivateequitynews.com for our rate card and more information.