What’s it really worth?

Alternative gaming group Goldrush may offer clues to a realistic assessment of RACP

unters on the JSE would probably prefer having more investment companies that offer exclusive access to promising unlisted companies than those with portfolios underpinned mostly by listed counters. (Take a bow, Remgro, Reinet, PSG, Zeder and Hosken Consolidated Investments.)

There are only a few investment vehicles that offer compelling exposure to unlisted investments, arguably the most popular being Brait.

Sabvest, African Empowerment Equity Investments (AEEI) and Trematon Capital also offer exposure to unlisted investments, but lack broader market appeal, mainly because their shares lack liquidity.

One company that does appear to be attracting more market interest is RECM & Calibre (RACP), headed by the

Pinvestment triumvirate of Piet Viljoen, Jan van Niekerk and Theunis de Bruyn. The bulk of the value in RACP resides in unlisted alternative gaming group Goldrush, which at the end of March accounted for 45.5% (R447m) of the net portfolio value of R983m.

Other major unlisted components include retail holdings worth R225m (or 22.8% of the portfolio), consisting of an effective 2.5% stake in health-care retailer Dis-Chem and 28.3% of safari/hunting retailer Outdoor Investment Holdings.

In its recently released year to end-March financial report, RACP discloses that its net asset value (NAV) grew 6.1% to R19.66/share (after allowing for an increase in capital gains tax). That beats the 3.2% total return generated by the JSE Alsi over the same period.

But since listing in mid-2010, RACP’s net after-tax NAV per share growth of 97% lagged the Alsi untaxed total return index’s 129%.

RACP was somewhat slow out of the blocks after listing, in terms of deal flows, which meant a cash drag in the early years. But RACP chairman Viljoen notes that over the past two years — or since becoming fully invested — the company has outperformed the Alsi substantially. But what’s really worth noting is that RACP’s valuations lean rather conspicuously towards the conservative side. While Viljoen believes intrinsic fair value is growing at a rate well in excess of accounting NAV, he stresses that the company is loath to mark its assets up to an opinion of full value. He reckons the proof of value comes out only in transactions. Though that may seem too idealistic, the company can at least back up its valuation contention with a recent transaction. The operating assets of brandy and wine specialist KWV Holdings, in which RACP has a 5.1% shareholding, were recently sold in a transaction that implies a value for the liquor company that is at least four times the value stated in the investment portfolio as at end-March this year. Viljoen argues that accurate valuations generally emerge only when large transactions take place at arm’s length between parties that have the proper incentives. “In the absence of such confirming transactions, valuation is more art than science, and care should be taken not to get caught up in the chatter of markets.” At the time of writing RACP’s listed preference shares were offering a 9% discount on the official NAV as at end-March. The discount is on the narrow side, bearing in mind that traditionally investment companies can

‘‘ IN THE ABSENCE OF . . . CONFIRMING TRANSACTIONS, VALUATION IS MORE ART THAN SCIENCE, AND CARE SHOULD BE TAKEN NOT TO GET CAUGHT UP IN THE CHATTER OF MARKETS PIET VILJOEN