What’s worth a tilt in tough times?

Financial Mail - Investors Monthly - - Editor’s Note - MARC HASENFUSS email Marc on hasen­fussm@times­me­dia.co.za

THERE WAS A TIME when I firmly be­lieved Rem­gro — the Stel­len­bosch-based in­vest­ment be­he­moth — was the share all South Africans should own. That opin­ion may have changed. That said, cash flush Rem­gro still of­fers a di­ver­si­fied spread of qual­ity and cash spin­ning as­sets that are ca­pa­ble of fund­ing a pro­gres­sive div­i­dend pol­icy.

The Rupert fam­ily-con­trolled ve­hi­cle has also shown that over the long term its port­fo­lio is ca­pa­ble of build­ing steady (rather than spec­tac­u­lar) value.

But at the time of writ­ing Rem­gro’s share price was floun­der­ing at the same lev­els of late 2013. That would sug­gest things have gone slightly awry strate­gi­cally.

Rem­gro’s big­gest mis­take, in terms of port­fo­lio value dam­age, was back­ing a re­verse takeover that se­cured its pri­vate hos­pi­tals sub­sidiary Medi­clinic In­ter­na­tional a list­ing on the Lon­don Stock Ex­change.

With hind­sight, Medi­clinic prob­a­bly did not strike the best deal terms, and this has come back to haunt Rem­gro as the mar­ket value of the pri­vate hospi­tal busi­ness, once the group’s big­gest in­vest­ment, has plum­meted.

The dis­count that Rem­gro’s share price of­fers on the in­trin­sic value of its port­fo­lio — com­pris­ing mainly listed en­ti­ties such as Medi­clinic, Dis­tell, Rand Mer­chant Bank Hold­ings (RMH), RCL Foods and RMI — has also widened markedly in re­cent months.

A few years ago the dis­count was re­duced to a sliver, but now prob­a­bly sits north of 20%. The wider dis­count can be in­ter­preted as the mar­ket doubt­ing Rem­gro ex­ec­u­tives can un­lock or en­hance value in the short to medium term.

Sen­ti­ment is not helped by the fact that Rem­gro, de­spite Medi­clinic’s global span, is per­ceived as one of the most typ­i­cal SA Inc stocks. Even though Rem­gro has ex­cit­ing in­vest­ments in fi­bre-op­tics, the con­sumer goods and fi­nan­cial ser­vices in­ter­ests are un­likely to man­age any­thing but pedes­trian growth in a slug­gish econ­omy.

I pre­fer other in­vest­ment coun­ters. I think the deeply dis­counted HCI is much more than a proxy for Tsogo Sun, Tre­ma­ton Cap­i­tal has an in­ter­est­ing prop­erty-backed pri­vate schools thrust and Sab­vest has an in­trigu­ing port­fo­lio.

I even like AEEI, where over­wrought me­dia re­ports have pre­cluded in­vestors delv­ing into a sim­ple value propo­si­tion.

Don’t dis­re­gard Rem­gro. The port­fo­lio in bet­ter times will rock. CEO Jan­nie Du­rand will prob­a­bly play it cool — es­pe­cially with the re­cently ac­quired Unilever spreads busi­ness be­ing bed­ded down (and prob­a­bly even­tu­ally ush­ered to­wards RCL Foods).

The ques­tion is whether to nib­ble now, or wait? I’d sug­gest the latter — but don’t quote me … not in this aw­ful mar­ket.

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