When fledgling empowerment company Brimstone listed on the JSE in 1998, empowerment was on a roll. The company had been nurtured since 1994 by one of the first black accountants in SA, Mustaq Brey, and former teacher Fred Robertson, and it was the first Cape-based empowerment company to list.
But within a few weeks, as Asian flu spread across the world's stock exchanges, Brimstone, along with many other listed companies, was looking very ill indeed. It lost nearly 22% on its share price within a month.
"I went cold worrying about how much value had been destroyed," recalls CEO Brey. "I felt so responsible, especially having raised money from more than 4 000 previously disadvantaged shareholders on the Cape Flats."
The share price plummeted from 510c in July when Brimstone listed to 110c by December. "Then the vultures arrived," says Brey. Corporate raiders saw the crash as an opportunity to asset strip the company - Brimstone's net asset value was 250c.
Brey had to make a tough decision to save the company. "It would have been morally wrong to have left investors out of pocket," he says. "So we liquidated a list of assets, including African Harvest, Afribrand and Tourvest, and paid out 150c to shareholders as a capital redistribution."
Most of the investors had paid about 125c for their shares. "They remain shareholders and own about 57% of Brimstone."
Brey says he regrets liquidating key investments - it set the company back about five years - but feels it was the right thing to do at the time.
Since then the share has been clawing its way back up the price charts and it is now at 135c. Brey says the market is again taking notice of its performance. Cash reserves are strong at over R50m, debt is minuscule and NAV is 140c/share. Last year's maiden dividend of 4c and this year's 8c, showing a dividend yield of 6,7%, have impressed investors.
A string of deals also shows the company is again robust and on the hunt for value-adding acquisitions. It hopes to have R1bn in assets by the end of this year, up from its current R300m.
Stakes in Afrox Health (worth about R300m) and packaging company Lenco (worth about R52m) will plump up the company's industrial portfolio, while an additional 10,76% in food group Sea Harvest, valued at R85m, gives Brimstone a healthy 21,5% stake.
It disposed of smaller investments in Nando's Holdings, Faizyme, Spitz and Keerom Chambers to invest in financial services and industrials. "Unlike the resource sector, which we feel is fully priced, industrials still have a lot of value," says Brey. "They have real assets with real cash flow."
But a strong rand calls for a balanced portfolio, hence the financial services component.
Brimstone has not been put off by the disappointing returns on its Peoples Bank investment. Nedbank offered Brimstone cash or shares to exit. It chose the shares and realised R6,7m, on an initial outlay of about R250 000. It also means Brimstone is in a strong position to be part of Nedbank's future empowerment plans, spurred on by the financial sector charter, in which a minimum of 25% of companies must be under black ownership by 2010.
