Costly blind spot?

The small-cap malaise on the JSE could not be better illustrated than by the market looking past developments at Stellar Capital Partners (SCP). SCP trades at a hefty 45% discount to its updated sum-of-the-parts value of 110c a share. This might be viewed as “fairly normal” for a small investment company — except that SCP is in the throes of selling off its major investments, most notably industrial supplies group Torre and electronic security specialist Amalgamated Electronic Corp (Amecor). Last week SCP also detailed a transaction in which it sold off the bulk of its 49% stake in financial services group Prescient for R384.5m cash — equivalent to about 35c a share.

One could safely assume that SCP will garner about R300m when the Torre buyout offer is executed, and perhaps R400m for Amecor. That means more than R1bn should be rolling in at SCP in the near term — an amount that comfortably covers the preference share liability of R576m and other debt.

Conservatively, including cash on hand and other smaller investments, there has to be at least 80c a share without even factoring in the retained stake of 19.4% in Prescient.

Then there is the X-factor of having three shareholders — Hollard-aligned investment company Westbrooke, Rational Expectations and Genesis Capital Partners — building strategic stakes in the company. The more optimistic punters are already muttering excitedly about Rational Expectations using SCP as a vehicle to list the Le Roux family’s private interests.

All things considered, there should be a buzz around SCP. Yet the share price barely blipped at the news of the Prescient deal. Perhaps the decision to retain a significant minority stake in Prescient has sent out the wrong message. This decision might hint at SCP enduring as an investment vehicle when (I think) most shareholders would prefer the portfolio to be sold off and the proceeds returned expediently.

Reinet’s rats and mice

Rupert family-controlled investment group Reinet says in its annual report that the importance of the level at which its shares trade is well appreciated by directors. Still, the overall feeling is that the focus (yawn) will remain on investing to achieve long-term growth in NAV in an increasingly volatile global context.

More intriguing is the willingness to address smaller assets for which “the time and money spent is disproportionate to their ability to make a meaningful long-term impact on NAV”.

For me, Reinet revolves around its “currency” holding in British American Tobacco and its promising investment in Pension Insurance Corp — accounting for about 85% of NAV. Over the past 10 years the asset manager (Johann

Rupert) has also accumulated an array of fund investments and direct holdings. Not many rank as particularly inspiring.

I’m not sure how vigorous the culling of the rats and mice will be. It might be restricted to sifting through the €59m in undisclosed “other investments”. Some of the specialised fund investments look unconvincing, but exiting these may not be possible due to lock-in terms.

Showdown at Sandown

An influential investor at Sandown Capital has called for a shareholders’ meeting to consider resolutions — including changes to the board.

Sandown trades at a sizeable discount to the intrinsic value of its legacy portfolio — including stakes in listed counters such as Stenprop and CIL. No new investments have been made since the group listed late last year, nor have there been disposals.

A call for such a meeting requires the support of 10% of a company’s shareholders. There are only two shareholders holding more than 10% — a mystery entity called Nkholi Consolidated Investments and Sean Melnick, the prime mover at Peregrine (which unbundled Sandown).

Put it this way … it’s very unlikely that Melnick called the meeting.

All things considered, there should be a buzz around SCP. Yet the share price barely blipped at the news of the Prescient deal