The late great Thys Visser, former CEO of Remgro, always maintained that a cash heap was an insurance policy … ensuring that the iconic investment company could support its underlying investments and pay dividends through thick and thin.
Remgro is brimming with cash — possibly more than the usual insurance policy.
But, hey, these are tempestuous times. You probably can’t be too careful. Frankly, when insomnia kicks in these days, I open X with a good deal of trepidation. There is usually a nasty surprise that has me cursing either that I am short Sasol or that I failed to grab those damned gold shares. At the end of December, Remgro sat with cash of just over R12bn. That’s a big number, but represented just 7% of Remgro’s intrinsic NAV.
That cash holding has risen considerably since year-end, following the sale of a chunk of Remgro’s leftover holding in banking group FirstRand. The updated number for cash would be about R17bn and, if the remaining 0.73% stake in FirstRand is regarded as currency, this figure shifts to more than R20bn. That means cash represents about 12% of Remgro’s portfolio, more than Remgro’s R16.2bn holding in fibre optics business Community Investment Ventures Holdings-Maziv does.
It would be tempting, for those comforted by Remgro’s cash pile, to also pencil in the strategic minority stake in financial services giant Discovery as another short-term currency source. Remgro’s asset register lists the roughly 8% stake in Discovery under “portfolio holdings”, alongside the remaining FirstRand stake. Discovery shares are up 25% over a year and more than 75% over three years. It would not be the worst time for Remgro to offload them.
Interesting, this ... Might Remgro even consider upping its stake in Discovery?
Not so fast, though. Remgro chief investment officer Carel Vosloo intimates the group relishes maintaining a partnership relationship with Discovery, “where there is still some runway to go”. Interesting, this, because Remgro, in the past, has stepped away from investments where it does not play an active or influential role as a shareholder. Might Remgro even consider upping its stake in Discovery?
What I find intriguing is Vosloo’s response to a question about whether Remgro would consider mobilising some of its cash for new opportunities. With a R165bn-plus investment portfolio, Remgro needs to make a meaningful new investment to move the needle. Vosloo said Remgro was seeing new opportunities, though there was nothing the group wanted to pull the trigger on. He did note, however, that Remgro had developed its pipeline of potential new opportunities more proactively than it had two years ago.
Remgro’s existing portfolio might have items worth tinkering with, especially in terms of further slanting the bias towards unlisted shares. I’ve raised this before, but RCL Foods, which has been an underperformer for the longest time, is surely a sitter for Remgro to pitch an offer to minority shareholders to take the business private. The group owns almost 80% of RCL Foods. It’s not going to hugely dent Remgro’s cash pile to put a decently priced offer to minorities, though that might be a flippant statement, knowing just how Remgro meticulously mulls its capital allocation decisions.
Still, with a resurgent Rainbow Chickens out of the RCL mix, the business would be nicely primed as an unlisted entity for a merger with Remgro’s 100%-owned spreads business Siqalo. This would create a more compelling basket of food brands with sound economics that would in no way detract from RCL’s strong niches in pet food, condiments, snacks and baking.
Vosloo is phlegmatic about the RCL/Siqalo matter. He concedes there is a logical fit “in the fullness of time” but stresses it’s not a burning issue. “For now, from a commercial point of view, we are mostly achieving what we want to achieve.”
Speaking of patience, it’s taking a while for the full picture to emerge at new-look investment counters Rex Trueform (Rextru) and Grand Parade Investments (GPI), which both released results last week. RexTru — these days effectively controlled by former HCI founder and trade union stalwart Marcel Golding — is still leaning heavily towards traditional fashion retailing in the form of Queenspark at the top line. But at net profit level, the group’s niche property holdings chipped in R14m, compared with the retail segment’s R11.4m. The contributions from media, technology and water infrastructure remain, however, negligible. Hopefully that will change sooner rather than later.
GPI, despite falling under the influence of investment banker and gaming sector enthusiast Greg Bortz, remains unchanged, with its legacy (minority) holdings in the GrandWest and Golden Valley casinos and a meaningful stake in limited payout machine specialist SunSlots. These are more than useful bargaining chips if the controlling shareholder, Sun International, wants to clean up ownership structures in its underlying assets.
But, in light of the rapid growth in recent years of online games under the ambit of mainly sports betting operators, investors might have expected more action in securing new gaming plays. In commentary accompanying the latest interim results, GPI said its focus would be on investments in the gaming sector — “both land-based and online”.
GPI is still trying to saddle up for historical horseracing, which has grown markedly in parts of the US. Whether the local market will join the stampede remains to be seen. Gut feel, though, is that the JSE’s larger casino groups will expeditiously review their portfolios to adapt to new gaming habits. If GPI plays its cards right, it might well garner a useful hand of smaller cash-spinning assets.
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