Brimstone, which has shown a knack of adding considerable value to its investments, is battling to gain influence at Rextru after it effectively became the biggest shareholder in the company. However, it has not been represented on the board since it made the investment in 2007.
This is because Rextru, which has been listed since 1945, remains artificially controlled by the Shub family via an N-share and ordinary share structure as well as through a pyramid holding company, African & Overseas Enterprises
Brimstone has been in the invidious position of watching helplessly as Rextru slipped into a R10m loss for the year to June.
The operating performance - in which turnover was down 11% to R484m and gross profit down 15% to R243m - was off the pace of the mainstream fashion retailers listed on the JSE.
"It's a ridiculous situation," says Brimstone chairman Fred Robertson. "We are watching value being destroyed but we are excluded from doing anything by the N-share structure."
The most likely scenario is for Brimstone to sell out of Rextru. Such a transaction, on paper, would result in an honourable exit considering the initial investment cost around R50m and the current market value is over R100m.
Brimstone has long held that conservatively managed Rextru is worth considerably more than the market price. The company's cash holding of around R100m is worth nearly 500c/share.
But securing "top dollar" for the investment will not be easy.
The challenge is finding a buyer - aside from the Shub family - when it's clear shareholders with a significant economic holding are precluded from participating in the business at board level. This probably means other mainstream fashion retailers that might covet Queenspark's market niche or value-seeking private equity investors might prefer to steer clear.
In any event, the outlook for Rextru is not bright either, with directors warning that Queenspark is likely to remain under pressure in the 2014 financial year.
Despite the bleak outlook and losses in the past financial year, Rextru maintained its dividend at 61c/share - a contentious issue since some investors might have deemed it more prudent to invest this R12m back into operational endeavours.
Developments could even prompt thoughts that Rextru directors might be willing to run the business down to make a bargain basement offer for Brimstone's shares.
Short-term prospects appear to hinge on value unlocking efforts centred on property - specifically, the development of the Rex Trueform Office, where construction is expected to be completed in the new financial year. Directors expect "substantial" tenant occupancy.
Source: Financial Mail via I-Net Bridge
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