BUY, HOLD, SELL

Investment companies are a mixed bag when it comes to potential risk and reward. Which counter is the smart money on?

ASTORIA INVESTMENTS

Share price: R11.92 JSE code: ARA

BUY IT IS DIFFICULT NOT TO VIEW Astoria Investments as a low-risk “buy”. For a start, the investment company trades at a significant discount to the value of its underlying portfolio, which is mostly made up of large global companies such as Apple, Facebook, Blackstone Group and Starbucks.

At end-March, Astoria held a NAV of US$1.20. This translates into a rand value of about R15.85/share — well ahead of the ruling share price on the JSE.

On top of the value proposition, there is a tilt by investment firm RECM & Calibre (RACP), which has made a cash offer of R13.50/share to buy 50.1% of Astoria. The offer is complicated by the fact that RACP wants to also offer as settlement a part payment in scrip — at a sizeable premium to its share price — should Astoria shareholders want to sell out en masse.

There’s no doubt the investment philosophy will change markedly if RACP gains control — perhaps even a liquidation of the portfolio to make way for deep-value investments. Should it not be successful, the aggressive tilt will likely light a fire under Astoria’s management. Efforts to close up the discount — including share buybacks and selling out of certain investment positions — will surely be contemplated.

Whatever transpires, Astoria should be trading closer to its NAV in the months to come, with the only major risk being a marked strengthening in the rand.

REINET INVESTMENTS

Share price: R246.84 JSE code: RNI

HOLD THE DISCOUNT REINET’S SHARE price offers on the intrinsic value of the investment vehicle’s portfolio has in recent weeks narrowed somewhat. The discount is still more than 35% — taking into account that the value of Reinet’s significant minority holding in British American Tobacco (BAT) is lower than it was at the end-March financial year. BAT now constitutes “only” about 62% of Reinet’s portfolio, with the promising investment in UK financial services company Pension Investment Corp (PensCorp) much more prominent.

The hitch over the short and medium term is that there is no catalyst for a value unlock. BAT — a source of generous dividend flows — is unlikely to be sold and PensCorp, which represents a quarter of Reinet’s last stated intrinsic value, will need to build operational bulk before it can be listed in London or attract serious suitors.

The rest of the investment portfolio is an untidy collection of private equity and specialist fund investments. Shareholders can but hope there is an outright winner tucked away in the array of funds, or in the small direct investments in specialist technologies.

There is also not much to woo yield seekers: the BAT-driven dividend flows are fairly stingy, albeit in line with the group’s strategy to use its cash to diversify the portfolio. Reinet remains largely a capital preservation play, and a “hold” for investors jittery about global developments.

UNIVERSAL PARTNERS

Share price: R15.50 JSE code: UPL

SELL THIS FAIRLY NEW INVESTMENT firm, which invests mainly in the UK and Europe, trades at a more than 25% discount to its last stated NAV of £1.04/share.

On paper the discount looks fairly enticing. But Universal Partners (UP) does not have a portfolio of investments that punters can really get their teeth into — yet.

The portfolio is a bit out of the ordinary, with stakes in Dentex Healthcare Group (a network of UK dental practices), Propelair (positive-pressure flushing toilets), motor manufacturer Yasa and international banking and finance group SC Lowy. Last month it bought into JSA Services, a professional employment organisation in the UK.

It will be some time before the potential of these investments can be properly gauged. In the meantime, UP asset manager Argo has indicated that a pipeline of potential investment opportunities has been identified. These are going through a “thorough due diligence” before being presented to UP’s investment committee.

UP seems intent on building a diversified portfolio of unlisted investments. Though this negates some risk, it does not make it easy to build valuation models. Without an inspired deal, suspects the share will continue to lag NAV, and the discount could widen if deal flows are sluggish.