Universal Partners: Dentists, toilets and payroll

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Universal Partners: Dentists, toilets and payroll

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Published Date: 2021-09-15 | Source: INCE|Community | Author: The Finance Ghost

Universal Partners: Dentists, toilets and payroll

Universal Partners has a primary listing on the Stock Exchange of Mauritius and a secondary listing on the JSE's AltX. The strategy is to invest in growth businesses in the UK and Europe, so it is essentially a way for South African capital to be invested in offshore entities without using up foreign investment allowances of individual investors.

Importantly, the group has a permanent capital structure (because it is a listed company rather than a closed fund with a pre-defined lifespan), so there is no need for Universal to sell any of its assets after e.g. 7 years. This differentiates the group from the usual private equity structures.

Universal looks for opportunities where it can invest between GBP10 and GBP20 million per investment, with a significant minority stake (25% to 49%).

The company has released its financials for the year to June 2021 and the share price jumped nearly 22% on the news. Having said that, the company is extremely illiquid, so large moves aren't unusual when the market does manage to match a buyer and seller.

Universal is a typical "NAV play" i.e. its goal is to grow net asset value over time. This is the usual strategy followed by investment holding companies.

The company has made six investments since it listed and has successfully achieved its first exit, selling YASA Limited (a manufacturer of electric motors) to Mercedes Benz in August 2021 for GBP42.8 million, gross proceeds of 3 times money. After fees and carried interest, this was an internal rate of return of 27.6%, which is impressive.

It's worth touching on the other investments in the group.

Dentex Healthcare owns 95 dental practices in the UK and is in the process of potentially acquiring a further 16. Demand for private dentistry is strong in that market and this is certainly an unusual and interesting business model.

SC Lowy Partners is a financial group focused on high yield and distressed debt market-making and investment management. It has Italian and Korean banking subsidiaries. Balance sheet restructuring opportunities are not thin on the ground in the wake of the economic disruptions of the pandemic. Once again, this is a unique exposure among JSE-listed companies.

JSA Group offers payroll, tax and compliance services to contractors and temporary workers in the UK. The contractor base has expanded to around 25,000 people. JSA is an acquisitive industry consolidator and hopes to expand its range of services and boost operating margins.

TechStream Group is a tech company that uses "cloud infrastructure" and "artificial intelligence" in the same sentence on its website, which means that it is a Very Exciting Company of the Future. At least it doesn't talk about the Metaverse. Jokes aside, after taking some time to figure out what the company does, I think that it is a glorified labour broker for smart people in the tech industry.

Propelair is the final company in the portfolio and it manufactures a low-flush toilet. I found the name utterly hysterical in that context, but perhaps I'm just a child at heart. This company has struggled during Covid as companies are not investing in their facilities in a time of remote and hybrid working.

Universal has a net asset value per share of GBP1.453 which equates to R28.7 per share. Yesterday's closing price of R23.2 reflects a discount to NAV of less than 20%, which is pretty low for an investment holding company and is perhaps a reflection of the quality of the underlying portfolio and how interesting it is.

It's just a pity that the company is so illiquid.





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