Smoke and mirrors

It’s not disclosed in Remgro’s financial results or mentioned in the investment presentations — but the investment group is still earning smouldering returns from an “oorskot” holding in British American Tobacco (BAT). The old Rembrandt group (the predecessor to Remgro) was built on tobacco, a product which these days is severely frowned upon. Remgro and Richemont, 10 years ago, officially unbundled their respective stakes in BAT with new investment company Reinet retaining a meaningful minority stake in the tobacco giant.

So it might come as a surprise that Remgro still holds 1.25-million BAT shares. These shares were technically inherited — and were attached to Remgro shares repurchased and held in treasury following a share buyback exercise that preceded the unbundling of the tobacco interests in 2008.

By my calculation the BAT shares are worth about R850m — bigger than some of the more marginal investments Remgro discloses in its investment portfolio. Though the value of the BAT holding is small compared with Remgro’s intrinsic value of about R150bn, it is worth noting that the value of these shares was about R250m in 2008.

In other words, BAT has been one of the best performers, albeit undisclosed, in Remgro’s portfolio of investments. Remgro CEO Jannie Durand says the BAT holding is not viewed as strategic but is rather retained as a “currency”.

Certainly the BAT holding has outperformed any cash Remgro has held on call. With Remgro moving back into a cash-flush position after the sale of its stake in Unilever there seems little incentive to dispose of the BAT stake … at least for the next few years.

Backing the jockey

I note with some surprise that Rian du Plessis has tendered his resignation as CEO of Phumelela Gaming Leisure. While he has committed to assist his successor, the vastly experienced John Stuart, until the end of March 2019, I thought Du Plessis would remain in the saddle for many more furlongs. He has been a superb corporate jockey, and ensured Phumelela stayed strongly positioned in a fast-changing gaming environment. Some comfort will be taken from the fact that he is committed not to dispose of any Phumelela shares held directly or indirectly in the foreseeable future. He played an integral role in transforming Phumelela from a one-trick pony as a tote specialist to a diversified gaming group with a commanding (and lucrative) position in sports betting. Du Plessis is one of those rare breeds of CEO, along with Astral Foods’ Chris Schutte and Afrimat’s Andries van Heerden, who exudes a reassuring confidence around operations and strategy as well as determination to drive shareholder returns.

Does his departure signal a change at Phumelela? Perhaps even the emergence of a strategic equity partner?

Better late than never

Industrial services group PSV has finally concluded its long-awaited BEE deal. Without BEE credentials it was hamstrung and at risk of not writing muchneeded new business.

Empowerment company Beryl Holdings will subscribe for 15% stakes in

PSV Industrial and PSV Asset Co for a total consideration of R5m. While this appears to be a fairly petty sum for a BEE investment, the deal is of critical importance to PSV. The Beryl deal follows a rescue deal where Mauritiusbased investment company Regis invested R26m in PSV for a 34.99% stake. The Regis deal depended on, among other issues, PSV entering into a binding agreement with a broad-based BEE partner.

Proceeds from the Beryl subscription will be used to (further) restructure PSV’S balance sheet so that it can hopefully find operational traction.

PSV offers interesting industrial services, and the next 18 months will determine if its prolonged time without empowerment credentials has caused any lasting damage to prospects.

Shares in Danske Bank had doubled in value from when Thomas Borgen took over as CEO in 2013 to July 2017, but have since lost more than a third and he has resigned in the midst of a scandal

British American Tobacco has been one of the best performers, albeit undisclosed, in Remgro’s portfolio of investments