Remgro the single most attractive share on the JSE

IF I HAD to choose only one share to invest in on the JSE, it would probably be investment holding company Remgro, which derives its cash income mainly from dividends received.

In respect of most of its investments, Remgro is party to a shareholders’ agreement that governs all the important aspects of the business of the respective investments. Therefore, Remgro can influence strategic decisions and important issues affecting its investment holdings.

The company’s activities are concentrated mainly on the management of investments and the provision of support rather than on being involved in the day-to-day management.

Remgro’s operating subsidiaries include both listed and unlisted companies. They are very well diversified over many industries, and its interests consist mainly of investments in the banking and financial services, medical services, food, wine and spirits, petroleum products, glass products, mining, media and technology.

Banking represents about 30 percent of the value of Remgro, with the stakes it holds in FirstRand and RMB Holdings. The consumer products segment contributes around 23 percent and consists of Remgro’s interests in Unilever South Africa, Distell and RCL Foods. Then there is healthcare, mostly a stake in MediClinic, which used to be more than half of the intrinsic value but now represents only 22 percent.

Insurance contributes 12 percent through a stake in RMI Holdings, which in turn holds OUTsurance, Discovery and MMI.

Remgro’s industrial interests, about 7 percent, consist of investments in Air Products South Africa, KTH, Total South Africa, PGSI and Wispeco. Infrastructure contributes 6 percent, and this segment’s investments include Grindrod, CIV Group and 30 percent of Seacom.

Other investments include various sports interests such as rugby franchises as well as the Stellenbosch Academy of Sport. There is also eMedia and Business Partners.

The competition authorities have approved Unilever’s acquisition of Remgro’s 25.75 percent interest in Unilever in exchange for the Unilever Spreads business plus a cash consideration of R4.9 billion. The Unilever Spreads business, valued at R7bn, includes the Rama, Stork and Flora brands.

Remgro elected the reinvestment option as an alternative to RMI Holdings’ final cash dividend.

Remgro invested a further R324m in CIVH on August 29 as part of a rights offer. In August, Remgro disposed of its investment and loan in MCSH for a total of $70m (R1bn).

Results for the full year to June 2018 show the banking contribution of Remgro’s intrinsic value was up 31 percent thanks to the share price gains of RMBH and FirstRand. The group’s intrinsic value increased by 2.2 percent to R256 a share. This was achieved despite the 24 percent decline in the intrinsic value of MediClinic. The dividends for the full year increased by 7 percent to 532 cents a share – not bad, given the state of our local economy.

Due to the nature of the group’s operations, the share should be valued on its market net asset value, and we calculate that Remgro is trading at an approximate 20 percent discount. This compares to its historical discount of around 13 percent on average.

Most of Remgro’s investments have good prospects, and a change in the negative sentiment on the JSE can be beneficial for it.