My stout defensive attributes — which, I confess, were not always on show when I trotted out as the Muir College fifth team flyhalf back in the day — let me down badly on the weekend. I took an unceremonious battering on both the tennis and padel courts in the final stages of respective championship tournaments. The less said, the better.
The unrelenting assault from younger, stronger, faster and more technically adept opponents simply broke down the wall. I feel the same way about the rockets in the red-hot tech market in and around the Nasdaq.
My offspring mock me for my defensive long game in Rainbow Chicken, Caxton and eMedia rather than tilting at a pot of gold at the end of the AI spending spectrum. Of course, from my side, there is now the morbid fascination to see if celebrated chipmaker Nvidia can break or reach a $6-trillion market capitalisation in the coming weeks … or even days. I’ll face more derision.
Some of the recent AI capital raisings are also mind boggling, and — dare I say — bubbly. So, it was a small victory for an old defensive punter to observe a distinct spark in the “smokestack” industries with British American Tobacco (BAT) also traipsing to a record high of £49.69 on the London Stock Exchange and briefly touching R1,111 on the JSE. The research teams at three major banks — Jefferies, Citi and Goldman Sachs — had all recently pencilled in a target price of £52 for BAT. For JSE-bound punters, BAT (leaving aside the generous quarterly dividends) has blazed a more than 40% return over a year. Over three years the gains, sans dividends, are close to 70% and over five years, not far from 100%.
Pretty good for a dying industry that, five years ago, looked at risk of not being able to re-invent itself as a purveyor of smokeless and healthier new-generation tobacco products. At present BAT is accorded a much sprightlier earnings multiple of close to 14 times on a trailing basis and over 12 times on a forward look, plus a yield of 5%. That’s hardly the rating one would expect on a mature, ex-growth company, and certainly feeds into my anecdotal evidence of a proliferation of vapes in my wider social circle.
Never, ever underestimate the pricing power of a habit-forming product.
I suppose one should spare a thought for Reinet Investments, the Rupert family-controlled investment vehicle, which sold off its remaining pile of BAT shares at the start of 2025. The group sold around 43.3-million BAT shares at £28.20 to raise about £1.22bn. Had Reinet persisted with the tobacco habit, that stake would have been worth £2.1bn … and that’s without adding in the regular dividend flows. Finding an investment that will match that gain with the BAT proceeds won’t be easy for Reinet which, frustratingly, has still not articulated its plans for its huge cash pile.
Speaking in (share) code, the other BAT, being investment company Brait, also saw a noticeable tick-up last week. Final results are due for release in mid-June, and I wonder if the market is anticipating some progress on the value-unlock front. In late February Brait let go of 5.6-million Premier Group shares to raise R1bn and reduce its stake in the consumer brands conglomerate to 24.3%.
While further progress in flexing Virgin Active’s profits would be welcomed, the sale of the remaining interest in UK fashion retailer New Look would be a significant step — even if this would be more structurally beneficial (in terms of hastening the listing of Virgin Active) than value-enhancing.
There might also be some intriguing moves afoot at household appliance and consumer goods distributor Nu-World Holdings. This column has, several times, highlighted the enticing 50%-plus discount that Nu-World’s share price offers to a “hard” net asset value of close to R70 a share.
Nu-World has been one of the most consistently profitable and dividend-paying companies on the JSE over the past four decades. But resilience is one thing. It’s another matter if the group is increasingly at risk of its returns being slowly crushed by a more competitive and fast-changing market. That pressure is already apparent in results over the past few years, and some shareholders have already registered their concern publicly.
In any event, Nu-World issued a circular this week asking shareholders about convening a special meeting to seek authority to issue shares for cash as well as to repurchase shares. Seems a bit of a contradiction, at first blush. The thrust would surely be on buying back shares, which are trading at a huge discount, rather than issuing shares at the same discount to raise cash.
The special share buy-back resolution, presented at the most recent AGM, did not garner the required 75% support. New provisions, though, require only an ordinary resolution (50% shareholder support) for Nu-World’s share buy-back authority. Hence the call for a special meeting on June 17.
Concurrently, I see that Nu-World has indicated that a maximum 6.197-million shares could be contemplated for issuing to raise cash. This is a fair chunk, considering Nu-World has less than 22-million shares in issue.
So if Nu-World were to issue new shares to one strategic investor — say, a black economic empowerment partner — that entity would secure a roughly 16.8% stake in the group. At current prices the maximum issue of shares would total around R175m.
Nu-World might well have a few small acquisitions lined up, and the shares-for-cash authority would allow some flexibility in such transactions.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.