Reinet becomes less of a BAT proxy

• Investment in cigarette company now far less dominant than in the past

Tagging Reinet, the international investment company controlled and managed by the Stellenbosch-based Rupert family, as a proxy for cigarette company British American Tobacco (BAT) may no longer be justified.

Financial results to end March released on Tuesday showed a sharp drop in the value of the group’s 2.97% stake in BAT to €3.2bn from €4.25bn in 2017.

This means the investment in BAT is far less dominant in Reinet’s portfolio than in preceding years.

At the end of March, the significant minority holding in BAT represented 62.4% of the net asset value of Reinet’s total portfolio of €5.13bn compared with 71% in 2017. Five years ago, the BAT stake — which has been reduced over the years — represented 82.5% of Reinet’s portfolio value. In the 2007 financial year, BAT represented 85.7% of the portfolio value.

Market watchers said the marked drop in BAT’s proportional representation in Reinet’s underlying value would help focus market attention on the group’s other investments, the biggest of which is UK-based financial services specialist Pension Investment Corporation (PensCorp).

During the financial year, the BAT share price on the London Stock Exchange decreased from £53 at the end of March 2017 to £41.31 at end of March 2018.

Reinet noted the BAT share price had been volatile over the financial year. There was an initial increase after the completion of the acquisition of the remaining 57.8% of Reynolds American. The price subse- quently decreased following the announcement of the US Food and Drug Administration’s decision to pursue regulations that reduce nicotine levels to nonaddictive levels.

But Reinet chairman Johann Rupert does not look ready to completely kick the tobacco habit, indicating the group continued to take comfort from the underlying financial results, dividend and prospects of BAT.

He highlighted BAT’s recent investment in Reynolds American, decreased US tax rates and increased focus on next-generation products. BAT also paid Reinet a chunky €208m in dividends during the year.

Lentus Asset Management chief investment officer Nic Norman-Smith said that while Reinet’s results contained little in the way of excitement, there was a compelling investment proposition building.

Although Reinet’s intrinsic value was dragged down almost 15%, the value of its secondlargest investment, PensCorp, grew 11% to €1.3bn.

In 2017, PensCorp, which provides tailored pension insurance buy-outs and buy-ins for UK defined benefit pension funds, wrote new pension insurance business with premiums of £3.7bn (up from £2.6bn in 2016). The company reported an underlying operating profit of £195m (£177m) and pretax profits of £391m (£276m), as well as a solvency capital ratio of 160%.

Reinet disclosed that at the end of 2017 PensCorp held £25.7bn in assets (£22.6bn) and showed a 13% increase in embedded value to more than £2.9bn. Reinet’s investment in PensCorp represented 25% of the portfolio value, up from 19.6% at the end of March 2017.