I make the market discount placed on investment company Reinet’s intrinsic NAV to be about 26% — that being the JSE market capitalisation of about R93bn vs the €6.2bn stated as intrinsic NAV by the group at the end of March. By JSE standards these days, that is a sliver of a discount.
It’s not uncommon to spot discounts of between 40% and 50% (and higher) on investment counters with fairly decent portfolios and longish track records. One can’t but notice that Remgro, Reinet’s corporate cousin in the Rupert family, offers a discount of about 47% on its latest numbers. Remgro has undergone some strenuous changes in a bid to build and unlock value for its shareholders — most notably shifting the portfolio bias heavily towards unlisted investments and a new story around “asset scarcity”.
Reinet, ironically, has been mundane by comparison — building on its existing portfolio positions and (very) gradually paying out improved dividends. I don’t think the phrase “value unlock” has ever been cited by Reinet, which was listed back in 2008. Proceeds from the cautious lightening of its once core position in British American Tobacco (BAT) — as well as the steady dividend flows — have been used to pursue new opportunities and build selected positions. Investment decisions have been premised on capital preservation rather than go-go growth aspirations.
I’m not going to argue against lingering contentions that Reinet is “doughty but dull”. The scoreboard will show that since its formation, it has invested about €3.7bn (with funding of €559m still earmarked for current investments). About €128m was invested in the year to end-March alone — mostly into other specialist private equity funds such as Trilantic Capital Partners, TruArc Partners and technology investment backer Coatue Management.
The scoreboard will also show that, since 2008, Reinet has generated an annual return of 8.3% with the underlying NAV reflecting an 8.8% compounded increase since March 2009. In cricket parlance, that’s like having Dean Elgar batting for you rather than Glenn Maxwell. Still, I’d take the low-risk nurdles to leg — especially considering that slow-and-steady has underpinned a longer-term share price gain of 107% over five years and 69% over three years.
Still, I’d take the low-risk nurdles to leg — especially considering that slow-and-steady has underpinned a longer-term share price gain of 107% over five years and 69% over three years
Structurally, though, I wonder (as a fairly insignificant shareholder) about Reinet’s longer-term strategy with the inspired investment in UK financial services business Pension Insurance Corp (PensCorp). This provider of insurance solutions to defined-benefit pension funds now makes up 55.6% of the portfolio value — quite a startling turn considering that not too many years ago the portfolio was totally dominated by BAT.
Late last year there were rumours that private equity players were lining up to acquire a meaningful stake in PensCorp. That has gone very quiet. But the group does appear to be reassuringly locked into a lucrative groove. During 2023 it clinched new business with premiums of £6.9bn (financial 2022: £4.1bn) and now holds £47bn in assets with insurance liabilities topping £41.2bn. Significantly, PensCorp paid a maiden dividend with Reinet’s share being a not insubstantial £50m (almost R1.2bn). After Reinet’s financial year-end, PensCorp declared another dividend, and this time Reinet’s share is worth about £73m.
Having PensCorp forking out dividends alongside the blazing quarterly distributions from BAT should give Reinet considerable scope to keep increasing its payout and look at both fortifying existing investment opportunities and seeking new ones. Reinet finished its financial year with cash resources of €357m — from which we need to subtract borrowings of €229m.
I suppose the holding of 230,000 SPDR Gold shares — the largest physically backed gold exchange traded fund in the world — can also be counted as “currency”. The value of this holding has crept up to €44m — and is proving to be one of Reinet’s better investments, considering the initial investment in 2015 was half that.
The big capital commitment for now appears to be Coatue, which is worth €73m, with another €209m still to be committed to the group’s two specialist technology funds. Fully invested, Coatue will become a significant fund investment alongside existing private equity positions in Trilantic and TruArc. The private equity portion now makes up almost 19% of Reinet’s intrinsic value with some decent distributions flowing out of Trilantic of late.
I suspect shareholders are a little ambivalent about the fund investments, perhaps wishing Reinet would back more standalone businesses such as PensCorp rather than broader theme funds. There is no news on PensCorp seeking a listing on the London Stock Exchange. But I did see CEO Tracy Blackwell saying in a recent interview that “the most rewarding part of my job has been seeing a company which we started from scratch being built into a FTSE 100-sized company”.
A quarterly update to end-March released earlier last month reported five new business transactions with total premiums of £1.5bn (including diamond giant De Beers) and a new business pipeline of more than £50bn. PensCorp — not resting on its big-client-win laurels — has also launched Mosaic, “a streamlined service for small pension schemes looking to complete a buyout”.
The continued vibrancy at PensCorp might make investors look less askance at Reinet’s €3.44bn valuation for its 55.6% stake. Bloomberg suggested — at the time of the rumoured private equity advance late last year — that a possible transaction could value PensCorp at as much as £5bn (€5.85bn). I frankly don’t see Reinet moved by that price ...
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