Investors might by now be blasé about the discounts offered on most of the JSE’s investment trust-type counters.
In previous years it would be odd to see discounts of between 55% and 70% placed on investment companies with decent assets and reputable management. These days the market is wary not only of investment companies carrying sizable debt, but also portfolios that are haphazard and unfocused as well as seemingly unable to unlock value.
Remgro is the doyen of investment companies on the JSE, and it could probably still be convincingly argued that the share is a stock that all South Africans should own.
Ten years ago a 35%-40% discount on Remgro would be unthinkable — especially after the unbundling of British American Tobacco and corporate cousin Venfin’s sale of its significant minority stake in Vodacom.
More recently, Remgro unbundled its stake in financial services conglomerate Rand Merchant Bank Holdings — a development that has altered the structure of the portfolio; the balance of listed and unlisted investments has shifted markedly.
Remgro’s intrinsic value statement to end-June showed that unlisted CIVH — which houses Remgro’s fast-growing fibre-optic operations — is now the third-largest investment, with an estimated value of R10.6bn. Spreads business Siqalo now also ranks as one of the group’s biggest holdings at a value of more than R6bn.
CIVH and Siqalo, which are both outperforming most (if not all) constituents of Remgro’s portfolio, now represent close to 20% of the roughly R90bn intrinsic NAV.
Remgro also holds significant unlisted investments in its China funds (Milestone and Prescient, collectively worth about R2.3bn), as well as meaningful stakes in industrial gases group Air Products (R4bn), energy group Total SA (R2.5bn), investment company KTH (R2bn), and smaller investments like Wispeco, PGSI, Seacom and the Invenfin venture capital fund (collectively worth about R3bn).
IM estimates that Remgro’s unlisted tally could be R32bn, which is roughly 35% of the value of the portfolio.
There is no way for investors to (easily) access attractive investments like CIVH or Siqalo other than through Remgro. If it’s reasonable to assume CIVH and Siqalo are bound to get bigger in Remgro’s life, then the share is attractively discounted for longer-term investors.
Of course, there are huge slabs of Remgro’s portfolio that might not appeal to all investors. Private hospitals group Mediclinic looks pedestrian and banking group FirstRand and insurance hub Rand Merchant Investment Holdings are unlikely to enjoy the benefits of a robust economy for some time to come.
At the recent investor presentation, Remgro CEO Jannie Durand stressed that more emphasis would be placed on the performance of smaller investments in the portfolio..
Remgro’s almost forgotten stake in Grindrod might be a case in point, and the sooner operations are focused on the attractive ports, terminals and logistics operations, the better.
IM also wonders if Remgro might finally take a decision on its leftover stakes in BAT and Reinet. These are not huge positions, but would generate on sale a decent lump of capital to be deployed into promising ventures like CIVH and Siqalo.
The bottom line is that for a 35% discount, investors get access to some sprightly unlisted investments as well as the less exciting listed portfolio rump, with a determined dividend policy to boot. IM recommends that longer-term investors accumulate at these dismissive levels.
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