Our opinion on the current state of BAT

Brait (BAT) is an investment holding company that owns 78% of Virgin Active, 93.7% of Premier, and 18.5% of New Look (a clothing retailer in the UK). It sold its stake in Iceland Foods for R2.4bn in June 2020 and used the proceeds to pay down debt. It is itself 46% owned by Christo Wiese's company Titan. The company's most important performance measure is its net asset value (NAV). The NAV was impacted by a change in the valuation multiple for Premier, which was reduced from 12.4 times to 11.4 times. The turnaround at New Look is very important to the group.

In January 2019, Brait announced that it had come to an agreement which would see its holding of New Look reduced to just 18.5%. This was done through a debt-swap which takes New Look's debt down from GBP1.35bn to GBP0.35bn. The news of this capitulation saw Brait's share price drop by over 20%. Virgin Active, which constitutes 65% of the Brait portfolio, has been battling with the impact of COVID19. Business Day (14/11/22) reported that Brait will have a cash pile of R2.1bn after the Premier listing.

Technically, Brait had a series of falling tops at around R170 in 2015 and 2016 that would have scared any private investor. This was followed by a collapse of the share price down to 231c in March 2020. Since then, the share has been moving sideways but spiked up on its latest results. The announcement of the R3bn rights offer in its latest results did not please the market, and the share fell over 10%.

In its results for the six months to 30th September 2023, the company reported active membership up 10% and "Continued strong performance in HY24, with EBITDA growth of 24% to R1 billion (LTM EBITDA of R1.9 billion), driven by strong growth across all divisions except for the Mozambican business." The company's net asset value (NAV) fell 3% to 684c per share, and headline earnings per share was 1c compared with a loss of 32c in the previous period. In a pre-close trading update, the company said, "Revenue in the MillBake business continued to see inflationary price increases that were delivered during the period. ... Virgin Active South Africa increased its active membership base from 606k as at 30 September 2023 to 625k as at 29 February 2024... against the backdrop of a soft and competitive UK retail market, New Look had a reasonable Christmas Quarter."

We feel that Brait has lost some of the appeal that it once had, and Christo Wiese is under a cloud since the collapse of Steinhoff. In our opinion, this share is not a buy at the moment. The share has been trending down and needs to break above resistance at 500c before it becomes interesting - and that is a long way away.