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INVESTMENTS: Phetogo Prefers KWV To Klippies

 



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EMPOWERMENT company Phetogo appears to be backing new look KWV Holdings in preference to its more profitable Stellenbosch-based rival Distell.

In September last year when the old KWV Limited was split, Phetogo – as the main BEE partner at KWV - took receipt of a considerable number of shares in KWV Holdings and CapeVin Holdings.

Basically KWV Holdings retained the old KWV’s wine and brandy manufacturing facilities as well as well known liquor brands like Roodeberg and KWV brandy.

CapeVin essentially retained a sizeable indirect holding in Distell – which owns an array of powerful brands like Klipdrift, Nederburg, Amarula, Fleur du Cap, Hunters, Savanna and Zonnebloem.

Not long after taking receipt of the CapeVin shares Phetogo sold a sizeable tranche (believed to be 6.5% of its holding) of CapeVin shares to PSG controlled agri-investor, Zeder Investments.

The rationale for the sale was that Phetogo needed to fund its participation in KWV Holdings’ R150 million rights issue.

Early in January Phetogo sold another 39 million shares in CapeVin to industrial group Remgro (already a major shareholder in Distell) and Zeder. The deal was worth around R116 million.

One would not normally doubt the ‘street smarts’ of Remgro and PSG in effectively buying up a bigger stake in Distell. If so, one then might question whether Phetogo have done the right thing in letting go of such a valuable CapeVin stake.

There are a few points to consider:

CapeVin offers access to one of the best liquor companies in the world;

Distell has - thanks to powerful brands and superb management - traditionally outperformed KWV Holdings;

Distell is likely to continue offering excellent dividends, while KWV Holdings is still in the throes of transformation into a commercial entity capable of producing sustainable profits.

One would presume that Phetogo - other than having to fund its rights offer participation at KWV Holdings - might have other good uses for cash earned from selling CapeVin.

There might be liabilities that might need culling.

Phetogo may also wish top pay its shareholders a big once-off dividend.

The company may even want to pump up its stake in KWV Holdings, which would be understandable because the future well-being of Phetogo will depend heavily on the Paarl-based wine and brandy maker.

The overriding question remains: Will Phetogo regret - in five or six years time - letting go its CapeVin shares.

It has already been pointed out that the transaction price - 335c/share - used in the sale of shares to Remgro and Zeder already undervalues the ultimate holding in Distell by a fair margin.

An independent assessment of the Remgro/Zeder offer put the value of CapeVin, which is an unlisted share - at between 400c/share to 441c/share.

Let’s hope a revamped KWV Holdings can re-pay Phetogo’s faith.


 
 
 
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