Expectations of Remgro mount as share price discount narrows
bdlive.co.za - Sep 23rd 2014, 10:57
Remgro, the R118bn investment behemoth owned by the Rupert family, is facing great market expectations, with its latest results showing the share price discount on its underlying investments has been whittled down to just a sliver.
The company — which boasts FirstRand, Mediclinic International, Rand Merchant Insurance Holdings (RMI), Distell, RCL Foods, Unilever and Grindrod as key investments — on Wednesday reported that its intrinsic net asset value (NAV) grew 20% to R245.96 a share in the year to end-June.
It declared a total payout of 389c per share — 12.4% up from last year but slightly less than the consensus forecast for a payout of between 390c and 392c per share.
Intrinsic NAV is widely considered the key gauge in assessing the performance of investment companies.
The market expects Remgro either to enjoy continued strong performance from its core investments or to roll out more value-adding deals, since the discount offered by the share price on the official NAV has shrunk to less than 1%. Traditionally, listed investment trusts trade at discounts of 15%-20%. Remgro has attracted discounts as wide as 30% in the past.
Market watchers pointed out that the discount should not be taken at face value because the share prices of some large-listed investments held by Remgro — most notably Mediclinic, RMI, and FirstRand — had risen since the end of June.
At the end of June, Remgro’s discount to NAV was about 7%, but the shares have rallied in the past two months and reached a record high of R252.42 last week.
Avior Capital Markets analyst Richard Tessendorf said while the discount to intrinsic NAV had narrowed the recent share rating recognised that Remgro had a strong management team that had stood investors in good stead over the long term.
Nevertheless, he said the share price could be seen as "demanding", noting that Remgro’s various plays into Africa would take time to play out.
Remgro CEO Jannie Durand said the company had had a year of consolidation after a time of busy corporate action in financial 2013.
"In 2013 we did over R7bn worth of transactions … this past year we were down to around R1.3bn.
"We needed time to bed things down," he said.
In 2013, Remgro was instrumental in transforming Rainbow Chicken into RCL Foods, reinvigorating Grindrod, and firming up offshore footholds for Mediclinic and Distell.
Although Remgro’s cash pile is at R3.65bn, Mr Durand appeared to play down the chances of new investment. "We will probably look at driving new investment activity through the various companies we hold interests in, rather than making a deal at the centre," he said.
‘An African story’
Mr Durand confirmed African expansion was still a central investment theme. "Practically every one of our investments — from Grindrod to RCL Foods and Distell to FirstRand — has an African story."
He said Remgro’s fledgling infrastructure segment would be a priority investment area.
The infrastructure hub is Remgro’s smallest investment holding, but is anchored by a 25% investment in Grindrod and investments in unlisted ventures such as Pembani Remgro Infrastructure Managers, the Kagiso Infrastructure Investment Fund, undersea cable operator Seacom and fibre optic specialist CIV.
Nic Norman-Smith, chief investment officer at Lentus Asset Management, said it made sense for Remgro to pursue a strategy of "shoring up businesses they know well".
He said that while the narrow discount might suggest the market was expectant of deal flows, there was not an abundance of opportunities.
"One thing is for sure, Remgro is never going to overpay for assets. They never have … they’d rather sit on cash," he said.
The earnings performance of Remgro — up 20% to R12.92 per share — was largely underpinned by the performances of the listed investments.From DFM Publishers (Pty) Ltd
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