At the time of writing, the gold price had risen 2% overnight, while bitcoin — after an impressive dash during the weekend, when it was trumped as a strategic reserve in the US — had tanked a stomach-churning 8%.
By the time you read this, the situation might well have reversed. I have not placed my life savings in either asset class, but hold what might be termed a “timid hedge” position, albeit with a more than slight bias to the barbarous relic. Punters who are now playing hard and fast in gold and crypto have my profound respect.
I probably need, at this delicate juncture, to be a bit bolder in hedging my portfolio — which, I am ashamed to say, remains mostly cash, with minuscule positions in Reinet, Sasol, Hosken Consolidated Investments and Remgro. I have been digging around gold shares and had compiled a quartet of AngloGold Ashanti, Gold Fields, DRDGold and Pan African Resources, as well as the Pax Gold crypto coin. But my nerve never held for very long. My gold exposure is now consolidated into just AngloGold, which generated some seriously impressive cash flows in its past set of results and is a fair bit off R624. I will probably be interested at below R550, especially after witnessing Elon Musk’s Texas Chainsaw Massacre episode and enduring the delicate diplomacy of Donny and Jaydee.
The crypto consideration is more difficult, and I remain squarely conflicted by the golden rule of not investing in anything you don’t understand. There’s just something about ripple that I like … so maybe mobilise the AngloGold dividend in that direction.
Speaking of pots of gold, RCL Foods — now sans Rainbow Chicken and Vector Logistics — served up some large and long overdue helpings of profit for the interim period to end-December. Interim headline earnings came in at 109c a share, with a 20c a share payout, which is a stout showing after the company registered 2024 full-year earnings of 182c a share and paid out 30c a share. Shareholder activist Chris Logan, who has chewed pebbles for many, many years at RCL, calculates that RCL’s return on equity had already shifted up to close to 13% as at the end of June last year.
At that stage RCL’s price-to-NAV ratio was just 0.67. The RCL share price is up about 18% over six months. That’s more than justified, but still markedly lags the gains seen, over the same period, by midsize countermates Premier (more than 50%) and RFG (more than 25%). RCL’s prolonged period of underperformance — until the big decisions about Rainbow and Vector — probably means the market needs more convincing that the turnaround has traction. If RCL can keep improving the margin the group will be halfway to attaining improved sentiment.
I remain squarely conflicted by the golden rule of not investing in anything you don’t understand
The grocery segment, which includes market leaders such as Ouma rusks and a strong pet food portfolio, fattened its margin of earnings before interest, tax, depreciation and amortisation (ebitda) to 13.7%, from 10.8% previously, while the bigger baking division more than doubled its margin to 9.1% (a noteworthy achievement, considering the competitive bread market). The sugar division — which at one stage was, like Rainbow Chicken, under review — remains comfortably the biggest by ebitda, with a R750m contribution. The margin dipped slightly to 12.4%, which seems more than acceptable for what is essentially a commodity business.
The question for me is what Remgro, which holds a commanding stake of 80.2%, intends doing with RCL. Remgro has a habit of what I call “supersizing” its investments. This entails merging businesses over which it has influence into larger entities in exchange for a reduced or significant minority stake. This was seen as far back as the merger of Rothmans International into British American Tobacco, and the HL&H, Best Foods and later Unilever arrangements. More recently liquor business Distell was sold to beer giant Heineken in exchange for a shareholding in Heineken Beverages, while efforts to create Maziv, an enlarged fibreoptic network with cellular services giant Vodacom, are still under way.
Some believe that to prime RCL for corporate action the sugar business needs to be separated from it to allow the grocery and baking brands to be dangled in front of potential suitors. Others maintain that the sugar business — which, unlike its larger rivals, has its crops under irrigation — is a valuable asset. Logan considers RCL’s sugar business to be the best in the country.
If Remgro intends to bulk up RCL and potentially place the group on the front foot for corporate action, there is an obvious “internal” option. Remgro owns Siqalo, the old Unilever spreads business, which notched up revenue of R3.6bn and operating profit of R518m in the year to end-June last year. At last count Remgro valued Siqalo at R6.1bn, compared with RCL’s market value of about R10bn. It would arguably be easier for Remgro to pursue a merger if RCL were no longer to be a public company. For the record, at the current share price the minority holding in RCL is less than R2bn. Not exactly a figure — adding in a decent premium — that will stress Remgro’s balance sheet too badly.
One quick aside, and one that relates to Remgro’s holding in Heineken Beverages. Beer giant AB InBev’s full-year and fourth-quarter report claims that market share gain and margin expansion drove double-digit top- and bottom-line growth in South Africa. Revenue and volumes increased by the low teens — “outperforming the industry, according to our estimates, with increased production capacity enabling us to meet the strong consumer demand for our brands”. What’s more, AB InBev’s Beyond Beer portfolio grew volumes by high single digits, driven by Brutal Fruit, Flying Fish and Redd’s.
Sobering stuff, ahead of the release of Remgro’s results — and an anxiously awaited update on progress at Heineken Beverages’ venture — later this month.
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