Buy One, Get them All

08/13/2008 12:00 am EST


David Stevenson

Columnist; Adventurous Investor, The Investors Chronicle; Financial Times

David Stevenson of Adventurous Investing finds a once-prominent global conglomerate that's quietly rebuilding.

Originally the London and Rhodesian Mining Company, Lonrho (LSE: LONR.L) became a worldwide conglomerate from the 1960s into the 1990s, and was subsequently broken up.

Over the last few years the new management team has been quietly rebuilding the group which now has major interests in more than a dozen different companies operating in countries as varied as Equatorial Guinea, Angola, and Mozambique.

Some of its businesses are already solidly profitable, but the expense of building such a diversified range of new businesses is draining the group's profitability.

For the six months ending in March, Lonrho reported a pretax loss of ?6.3 million against ?3.3 million a year ago (primarily due to a loss of ?6.1 million from developing new shipping routes in its SAILS business), while its revenues grew to ?17.8 million from ?4.6 million.

A series of fund raisings have brought in a curious mix of new investors such as Ospraie Management, a New York-based commodities investor with a value investing style; hedge fund Tudor BVI (run by the legendary Paul Tudor Jones II); US deep value investors Mackenzie Curdill, and [big investment firms] such as UBS and Lehman.

What's tempting all these investors is the range and diversity of companies within the group, including:

  • A 49% stake of Fly540 in Kenya, an already-profitable, regional no-frills budget airline
  • A 67% stake in South African containerized shipper SAILS
  • A 63% interest in the already profitable Luba Freeport [deep water port] facility in Equatorial Africa

The development process of turning the companies into profitable, separately listed firms can take years, and most of Lonrho's key investments are still at a fairly early stage. Consequently, Lonrho is likely to keep using up its cash resources for the foreseeable future. But in the medium term, Lonrho has the great advantage over fund management firms of actually owning the trading companies.

And its diverse range of assets in very different sectors-everything from transportation and ports to agriculture and microfinance banks in Mozambique-could give it real strength if commodity prices suddenly take a dive and drag Africa's growth rate down with it.

Nevertheless some Africa hands question whether Lonrho is in fact too diverse. "It spreads itself too thinly and doesn't have the capital firepower to compete with the really big private equity firms now turning their attention to Africa," says one analyst who's covered the region for decades.

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