These days it’s not easy to find a central theme in the dozen or so investment companies listed on the JSE. Maybe 18 months ago investors would not have been overgeneralising when saying that practically all were trading at discounts much deeper than the 20%-30% discount traditionally applied on the intrinsic NAV. Some market wags might even have contended — especially given the gaping discounts and arduous value-unlocking efforts — that investment companies were no longer relevant or enticing.
Perhaps the delisting of counters such as PSG Group and African Rainbow Capital Investments would have supported such a dire notion. Things have changed a bit of late. Discounts in some investment counters have narrowed as value-unlocking efforts gain traction. Unfortunately, some of these exercises in releasing value will, in some instances, see the winding-up of that particular investment company.
There has been more action to peruse. Reinet sold its stake in British American Tobacco (BAT) and is finalising a deal to offload its valuable stake in unlisted Pension Insurance Corp — two transactions that will drastically alter the portfolio structure.
More recently, EPE Capital indicated its support for a separate listing for its key holding in fintech business Optasia. Remgro sold its “oorskot” holding in BAT for about R1bn and used the proceeds to underpin a generous special dividend. Even little Astoria has undertaken a couple of transactions, selling out of its education interests and cashing in some of its shareholding in specialist retailer Outdoor Investment Holdings. The discount, though, is still about 40%.
Then there are those investment counters that are at an early stage of development, where investment themes and, indeed, asset ledgers are still in a formative phase. Rex Trueform Group (Rextru) and Grand Parade Investments (GPI) are two such early-stage investment companies, even though both have long histories on the JSE in previous iterations. The similarity between Rextru and GPI is that a new controlling shareholder emerged with plans to diversify from their existing core, fashion retailing and gaming respectively. Both are forgoing dividends as portfolios are built out.
Former trade union stalwart and co-founder of Hosken Consolidated Investments (HCI) Marcel Golding took control of Rextru about eight years ago, essentially buying a niche fashion retailer with an indifferent track record in the form of Queenspark and a heap of accumulated cash. Rextru has since built an impressive property portfolio, taken a stake in water provision (via South African Water Works), expanded into specialist media and taken a tilt at technology with a 30% stake in Byte Orbit.
It’s not as if the fashion retailing core is being neglected. Queenspark has opened 15 new stores in recent years and remains an important cash flow generator. But in terms of net profit, the retail segment (which managed to chip in R11.4m in the last financial year) has been surpassed by property (R15.5m). That said, I think investors should monitor progress on the media side. Golding, of course, was the prime mover behind eMedia Holdings and e.tv during his tenure at HCI. The media niches Rextru is playing in look quite interesting, especially the sport coverage at school and club level, where support is every bit as vociferous as in the international leagues. It is the cost-effective coverage of these events that could catch on, and I refer you to the FM’s story this month on streaming sport coverage.
The similarity between Rextru and GPI is that a new controlling shareholder emerged with plans to diversify from their existing core
The Rextru annual report notes that Telemedia’s strong performance was driven by the securing of larger projects from long-standing customers. It added that AI Sport Africa further contributed positively to profits. Golding’s comments on the media segment were relatively scant, but he did note that the group would “look at every aspect of modernising broadcasting and telecommunications through the integration of mobile network technology and AI-powered solutions”. Golding also pointed out that new business solutions offered by Telemedia included managing the SuperSport Schools playout on the public broadcaster’s streaming platform, SABC+.
The company has also ventured into content and consulting deals, having secured a three-year agreement with SportyTV to commercialise its 24-hour football channel in South Africa. I was surprised to see that the annual report disclosed that Telemedia played a “pivotal role” in launching the channel in partnership with eMedia’s free-to-view satellite platform, Openview. Such collaborations look promising.
GPI, now effectively under the control of former investment banker and gaming enthusiast Greg Bortz, might not be viewed as an investment company busy with diversification. The annual financial statements make it clear that the group is a pure gaming play, unlike the old GPI, which also had interests in fast food.
But there is diversification within the gaming sector to mull. GPI’s main value premise resides in its 15.1% stake in SunWest, which operates the cash-spinning GrandWest casino in Cape Town, and a 30% stake in limited-payout machine business Sun Slots. Both investments might be regarded as ex-growth, with gaming sector growth mainly happening in online betting. GrandWest faces another challenge in that Tsogo Sun looks set to transfer its Caledon casino licence to Somerset West, which could eat away at some of GrandWest’s market.
GPI, and I’ve reported this before, is still exploring “future participation” in historical horse racing (HHR), a niche that has operated at a brisk trot in the US. Bortz is a major shareholder in Cape Racing and the Kenilworth racetrack, one might presume, would be a perfect venue to host HHR. What does surprise me is that GPI is not chasing down any online gaming opportunities. The group, with a market value of R1.1bn, does not need a huge acquisition to nudge the NAV needle.
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