Ending a turbulent, pandemic-tainted stint on the Australian Stock Exchange, listed pub group Redcape will soon return to private ownership following an overwhelming shareholder vote.
Having taken several forms and been in the hands of multiple movers and shakers, Redcape Hotel Group ran an IPO and listed late 2018, to a lacklustre public response.
The company maintained its core strategy of sustainable growth, as well as much of its prior investors, who stayed on the vehicle into securities in RDC.
But even omitting the cliff off of which RDC and many other listed companies fell when pubs and hospitality unilaterally closed in Q4 of FY20, Redcape share price has consistently traded below the company’s net asset value.
For FY21 Redcape reported Underlying Earnings of 10.2c per security – up 16.0 per cent on the comparable full year of FY19. The end of 2020 recorded RDC share price of $0.94, while the Directors NAV (Net Asset Value) was up to $1.22 cents per security, as per independent valuation of the Group’s 36 assets.
Redcape focuses on what it deems its lead indicators, being staff satisfaction and customer NPS (Net Promoter Score), and sees these measures as “going well”.
The only part of the strategy that was not going well was raising capital out of the public market, while operating at a discount to NAV.
RDC was the buyer in four acquisitions in 2020, which stretched the balance sheet. By comparison MA Financial was able to raise the $54 million to buy back the Bendigo All Seasons in a matter of days, due to the investor appetite.
Approaching institutional investors, RDC CEO Dan Brady regularly found himself fielding questions on gaming, and stymied by the increasing number of capital sources adopting ESG (Environmental, Social, and Governance) filters on their investments. During 2020 some ESG mandates also began to include alcohol.
Social factors have prompted significant changes in the public market in a relatively short period, as seen in the reluctance of some major banks to lend on projects such as coal mines.
Sensing “a lot of headwinds” and the growing hurdles for institutional investors, RDC management began to feel the listed world is not the best place for it to be.
Although switching to an unlisted retail vehicle will not reduce the company’s governance requirements, there is otherwise little disadvantage, and it will free the $1.7bn pub group to tap further sources of capital for substantial growth.
Mid-August brought the announcement the RDC board would hold a shareholder vote on the de-listing proposal, intended to provide securityholders with the option of exiting at a fixed price of $1.15 per security, or opting in for more at the same price.
The shareholder vote took place Friday (10 September), returning an overwhelming 99 per cent endorsement, suggesting the move is both supported and understood by securityholders.
“I think there was just a piece of the puzzle here that was missing, which was that we weren’t in the right market. And this will certainly correct it,” explained Brady in an interview on the development.
The company’s long-time CEO says “continuous learning” is absolutely what the organisation is about, and decision to de-list is a reflection of the times.
In a skyrocketing pub market, investors will ditch the discounted share price for the stability of at least 24 months’ certainty in the group’s property, which will be on a two-year independent valuation cycle.
“We’ve built a lot of value and our assets have improved in value, and you don’t have the volatility of an irrational market, you have the certainty of a rational, stable market pinned to valuations,” says Brady of the transition.
He finds many potential investors are undereducated on the strict regulation governing hospitality, and is pleased to be out of the public domain.
“We don’t think it’s a good spot for pubs to be in.”
Brady confirms Redcape will not be taking up with a deep-pocketed partner, expecting no shortage of interest from within its own sphere of influence, and will soon be free to join the well-funded national quest for pubs actually up for sale.
“It’s a really exciting development for us, in that we can get to the investors and the pools of capital that actually want to support these fantastic, unique businesses that reflect the communities we all live in.”