The extent to which investment holding companies have fallen out of favour with the market is amply demonstrated by investor stalwart Remgro. Its latest results reflect a NAV of R154 per share, miles ahead of its actual share price of R93 on the JSE. We asked CEO Jannie Durand if there’s any point to still owning Remgro shares if the gap doesn’t narrow.
JD: There’d be no point holding a Remgro and that’s why we need to make sure we create value. You can do it in various ways and we’ve discussed this — via share buybacks or growing the unlisted part of the portfolio. The only reason for investment holding companies to exist is the unlisted assets. If we can’t justify Remgro’s existence then you’re absolutely right, then we’re just destroying value for shareholders. We must make sure that doesn’t happen.
Does that imply that you need to get rid of the listed part of the portfolio?
JD: It’s not necessary. There’s actually a trend — and it’s quite strange — but it seems that if you hold underlying listed assets then your discount is smaller than if you hold unlisted assets. Maybe [people] query your valuations on the unlisted assets, but I’ve always been a firm believer [in holding] unlisted assets that shareholders can’t otherwise own directly.
Unfortunately, at this point I think all the investment holding companies are trading at big discounts, so they are out of favour and if we can’t rectify it in the short to medium term then we need to query what we’re doing.
Do you feel yourselves under pressure to start changing this trajectory?
JD: We haven’t really … mainly, people have asked us why we’re not buying back more shares and I think that’s a valid question. But with this pandemic, [if] we spend money buying back shares [the risk is] we haven’t got the cash to support the underlying businesses, so it’s a balance we have to have. I have a lot of my shares in Remgro so I’m also acutely aware of this. If we don’t create value either as a management team we should leave or be fired.
Is leaving or being fired imminent for you?
JD: [Laughs] I’m not sure but so far nobody’s wanted to fire me. But it has been very difficult and in the past five years there’s been zero growth in the SA economy. They’ve been the toughest in my 25-year career. You’re living in a country where there’s no growth and some of your economic policies are so outdated and ridiculous …
Is the gap between NAV and share price more a reflection of the negative light in which SA is now viewed?
JD: What we can see is that in our international shareholder base a lot of people have sold out. It’s decreased from 34% to 30%.
One option for your cash is to buy distressed companies. Are you biding your time? Do you think there’ll be better bargains a few months out?
JD: Yes, I think things are going to be a lot tougher than we think in the next 12-18 months and I don’t want to sound cynical but sometimes crises do create opportunities.
You talk about ridiculous economic policies. At what point can SA business, aside from the channels of Busa, say, play hardball with the government?
JD: From a Remgro point of view we’ve been outspoken; our chair [Johann Rupert] has always been honest about what he sees as going wrong in the country so we became to a large extent a scapegoat; the face of "White Monopoly Capital". We’ve never been afraid of speaking out. For example, we’re now throwing good money after bad at SAA. We haven’t got any money as a country and we want to bail out SAA.
Unfortunately I must say these forums, in my opinion, are sometimes toothless so we need to be more outspoken. Silence is not an option. Does the government listen? There has been a bit of a change recently, but not quickly, though we have made good headway in the chicken market. If we don’t have a chicken masterplan for SA, for example, the whole industry can be destroyed. Same with sugar.
But is the time for talking not over? Many wonder if a tax revolt is the way to force change. What do you think?
JD: But then as companies we start to break the law, and then you’re losing the high ground you can operate from. You can’t have constructive engagements.
I don’t think a tax revolt for our company would be on the cards with our culture and our values. But yes, the tools are getting fewer and fewer.
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